Reviewed by the Sky Escrow team, a California DFPI-licensed escrow company serving Los Angeles County.
Last updated: August 25, 2026
New construction escrow handles the deposit, disclosure, and closing process for buying a home directly from a builder or developer, rather than from an individual seller. It typically involves builder-specific deposit structures, coordination tied to construction completion, and — for larger developments — subdivision public report requirements overseen by California regulators.
How Is New Construction Escrow Different From Resale Escrow?
New construction escrow follows the same core function as any escrow — a neutral third party holds funds and documents until the agreed conditions are met — but the conditions themselves look different than a resale purchase.
Instead of a single seller and a home that already exists, escrow is coordinating with a builder or developer entity, a purchase agreement built around a construction or completion date rather than a fixed closing date, and — depending on the project — a phased deposit schedule instead of one earnest money deposit collected up front.
- The “seller” is a builder or development entity, often with its own standard purchase contract and addenda rather than a standard C.A.R. form
- Closing is tied to a completion milestone (framing, permits finaled, certificate of occupancy) instead of a fixed number of days after acceptance
- Deposits may be collected in stages tied to construction progress, rather than as one lump sum at opening
- Larger subdivisions may require a public report before units can be sold, which affects what escrow can accept and when
How Do Builder Deposit Structures Typically Work?
Builders commonly require a larger up-front deposit than a resale seller would, sometimes collected in more than one increment tied to construction milestones rather than a single deposit at contract signing.
The builder’s purchase contract — not a standard resale form — usually sets the deposit amount, the schedule for any additional deposits, and the conditions under which a deposit is refundable versus non-refundable as the buyer moves through design-center selections, loan approval, and construction. Escrow’s role is to hold and disburse those funds exactly as the signed instructions direct — it does not set the deposit percentage or refund terms; those come from the builder’s contract.
As a general norm rather than a fixed rule, resale-style earnest deposits often start around 1-2% of the purchase price, but production-builder new-construction deposits are commonly higher and builder-set — often in the 3-10% range, and sometimes a flat dollar amount rather than a negotiated percentage. Deposits are generally refundable while the buyer’s contingencies, such as financing, remain open, and typically become non-refundable once those contingencies are satisfied or waived, or if the buyer breaches the contract — but the exact terms and timing vary by builder and should always be confirmed in the specific purchase contract.
Does Escrow Coordinate Construction Milestones and Draws?
In some new-construction transactions, particularly where a construction loan or builder financing is involved, escrow assists with disbursing funds tied to specific completion milestones rather than releasing all funds at once.
This is not universal — many production-home purchases from a builder close in a single transaction much like a resale, once the home is complete and a certificate of occupancy has been issued. Where milestone-based disbursement does apply, it is typically directed by the lender’s or builder’s draw schedule, with escrow following those written instructions rather than independently verifying construction progress.
What Is a Subdivision Public Report, and Why Does It Matter?
California regulates the sale of new subdivided developments through a public report process intended to give buyers standardized disclosure about the project before they commit funds. For qualifying subdivisions, a public report from the state must generally be issued — and provided to buyers — before certain sales activity can proceed. public report process
For escrow, this can affect what documentation is required in the file and when deposits may be accepted or must be held differently for a subdivision that has not yet received its public report.
Under California’s Subdivided Lands Law (Business and Professions Code sections 11000, 11004.5, and 11010), a subdivider offering five or more lots, parcels, units, or interests for sale, lease, or financing must obtain a public report from the DRE before marketing or selling those units — a threshold that captures most condominium, townhome, and planned-community developments of any meaningful size.
How Long Does New Construction Escrow Take?
New construction escrow timelines are tied to the home’s completion, not a fixed number of days after contract signing, so they commonly run longer than a resale escrow and can extend across many months depending on the project’s construction stage at the time of contract.
- Contract and initial deposit. Buyer signs the builder’s purchase contract and initial deposit; escrow opens and begins holding funds per the builder’s instructions.
- Construction period. The home is built or completed; additional deposits, if required, are collected at the contract’s specified milestones.
- Pre-closing conditions. Loan documents (if financed), final walk-through, and any remaining subdivision or municipal sign-offs are completed as the home nears completion.
- Close of escrow. Once the home is complete, financing (if any) is funded, and the deed records with the county — closing the file.
Because the completion date drives the schedule rather than the reverse, buyers in new construction should expect closing-date estimates from a builder to shift as construction proceeds, more so than in a resale purchase with an existing, inspectable home.
California and Los Angeles Considerations for Builder Escrow
Escrow companies operating in California, including Sky Escrow, are licensed by the Department of Financial Protection and Innovation (DFPI) under the California Escrow Law and are required to hold client funds in trust accounts separate from company operating funds — a requirement that applies to new-construction deposits the same as any other escrow funds. California Escrow Law
Los Angeles County has an active pipeline of infill condo, townhome, and small-lot subdivision development, alongside larger master-planned communities elsewhere in the greater LA and San Diego markets Sky Escrow serves. Deeds for completed new-construction sales record with the county recorder where the property sits, and any applicable subdivision or municipal approvals are typically finalized before that recording can occur.
Frequently Asked Questions
Is new construction escrow different from a regular home purchase escrow?
Yes. The core escrow function is the same, but the deposit structure, contract source (the builder’s own agreement), and closing timeline — which is tied to construction completion rather than a fixed number of days — typically differ from a resale purchase.
Do I lose my deposit if I cancel a new-construction purchase?
It depends entirely on the builder’s purchase contract, which sets the refundability terms for each deposit stage. As a general norm, deposits are typically refundable while contingencies such as financing remain open, and typically become non-refundable once those contingencies are satisfied or waived, or if the buyer breaches — but this is not a universal rule, and the specific contract controls.
What is a subdivision public report, and will I receive one?
A public report is a state-issued disclosure document required for certain qualifying subdivisions before specified sales activity can proceed. Under the California Subdivided Lands Law, a subdivision of five or more lots, parcels, units, or interests generally requires a DRE public report before marketing or sale, so whether one applies depends on the size and structure of the specific project.
Can Sky Escrow handle escrow for a builder or developer directly, not just individual buyers?
Yes. New construction and builder escrow is part of Sky Escrow’s residential service line, working with builders, developers, and their buyers on deposit handling and closing coordination.
Working With a Builder or Developer? Start the Conversation Early
Because new-construction timelines depend on the completion schedule and can involve deposit structures unlike a standard resale, it helps to loop escrow in as soon as a purchase contract is signed rather than waiting until closer to completion. Sky Escrow works with builders, developers, and their buyers across Los Angeles County on new-construction and subdivision closings.
Sky Escrow, Inc.
15760 Ventura Blvd, Suite 1050, Encino, CA 91436
Phone: (818) 712-0000 / (888) 891-0002
Email: info@skyescrow.com
Licensed by the California Department of Financial Protection and Innovation (DFPI). License No. 96DBO-214073. License status: Active.
This article is for general informational purposes and is not legal, financial, or tax advice.