Escrow plays a huge role in real estate deals, acting like a safety net that holds funds until everything in the contract checks out. Property taxes can shift a buyer’s monthly mortgage payment, impact closing costs, and, if overlooked, cause some serious financial headaches. By staying sharp on escrow taxes, real estate agents can guide their clients through the process smoothly.
The Role of Escrow in Property Tax Management
When buyers get a mortgage, lenders usually require them to set up an escrow account, which holds money for property taxes and homeowner’s insurance. Part of the mortgage payment goes into this account each month to ensure these bills are paid on time.
Lenders do this to protect their investment because if property taxes aren’t paid, the government can place a tax lien on the home, which could lead to foreclosure. By handling tax payments automatically, escrow helps homeowners avoid late fees and legal troubles, making refinancing or selling the home easier.
Why Real Estate Agents Should Understand Escrow Taxes
According to recent research, only 60% of homeowners understand how an escrow account works, much lower than in 2024. Many homeowners are confused about the connection between monthly mortgage payments and potential escrow adjustments due to increases in taxes and insurance (Lereta, 2025).
Advise Clients Effectively
Agents knowledgeable in escrow taxes can clearly explain how a portion of the monthly mortgage covers property taxes, help clients anticipate changes from tax reassessments, and ensure buyers keep enough funds in their accounts.
Manage Common Tax Escrow Issues
Property tax reassessments can increase taxes, resulting in higher monthly mortgage payments. Recent data indicates that property tax payments rose by an average of 5.1% from 2023 to 2024 (CoreLogic, 2024). Additionally, 68% of homeowners have experienced increases in their monthly mortgage payments over the past two years (Lereta, 2025), primarily due to rising property taxes and insurance premiums.
Agents who stay informed on local tax policies and advise clients to prepare for potential increases could be impactful for homeowners. They can explain why shortages happen, how lenders adjust payments, and options for handling tax increases or decreases.
Understanding Tax Prorations
During a home sale, property taxes are split between the buyer and seller based on how long each owns the property during the tax year (Accounting Insights, 2025). This ensures both parties pay their fair share, and the closing statement includes the details.
However, many homeowners, especially those unfamiliar with escrow accounts, may be confused about their property tax responsibilities. This confusion can lead to missed payments, resulting in penalties such as extra fees and interest charges (Realized 1031, 2024).
Reminding clients to pay on time can help them avoid penalties and stay financially secure. After all, agents who understand taxes in escrow should guide homeowners who are not yet knowledgeable about these kinds of finances.
Key Takeaways
- Escrow accounts ensure timely property tax payments, preventing tax liens and penalties.
- Real estate agents must understand escrow taxes to educate clients and manage financial expectations.
- Changes in property taxes impact escrow payments, requiring agents to monitor local tax trends.
- Agents with escrow tax expertise build stronger client relationships and enhance their professional credibility.
- Eckell Sparks. (2019, May 29). Changes in mortgage payments due to property tax increases. https://www.eckellsparks.com/2019/05/29/changes-mortgage-payments-property-tax-increases/
- Fannie Mae. (n.d.). Why did my monthly mortgage payment go up? https://yourhome.fanniemae.com/own/why-did-my-monthly-mortgage-payment-go-up
- Framework Homeownership. (n.d.). Do you know these common escrow errors? https://frameworkhomeownership.org/know-these-escrow-errors
- Homestead Financial Mortgage. (2024, May 15). Understanding escrow shortage and why you may see a change in your payment. https://homesteadfinancial.com/purchase/understanding-escrow-shortage-and-why-you-may-see-a-changes-in-payment/
- RWM Home Loans. (2024, December 1). Why did my mortgage payment go up and what do I do? https://rwmloans.com/mortgage-payment-change/
- CoreLogic. (2024). U.S. home price insights report: February 2024. https://www.corelogic.com/
- LERETA. (2025). Annual escrow awareness survey reveals impact of rising property taxes and homeowners insurance. https://www.lereta.com/
- Accounting Insights. (2025, February 5). Adjustments for items unpaid by seller on a closing statement. Retrieved March 6, 2025, from https://accountinginsights.org/adjustments-for-items-unpaid-by-seller-on-a-closing-statement/
- Realized 1031. (2024, June 5). What are the penalties for paying property taxes late? Retrieved March 6, 2025, from https://www.realized1031.com/blog/what-are-the-penalties-for-paying-property-taxes-late
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