All About Escrow Fees: What They Are & Who Pays What

There are lots of costs and fees associated with buying or selling a home, and frankly, it can be confusing. What goes to who? Who pays what? What’s this or that fee for? Understanding what you’re paying for will help you feel more confident throughout your real estate transaction. Today, we’re going to take a look at escrow fees.photodune-15360523-notary-signs-papers-at-office-s.jpg

The basic definition of an escrow fee is that it’s a charge to the seller that covers the cost of the escrow agent or attorney who manages the holding and transfer of funds during the sale.

Why are Funds Held in Escrow?

When you are selling your home, it is common to have either an escrow agent or an attorney assisting with the transaction. Their responsibility is serious; they must ensure that any earnest money is held in an account for the benefit of the buyer and/or seller. It is fairly common to have conditions associated with an escrow account, such as:

  • Passing clear title
    when you are selling your home, your title must be unencumbered. This means no liens may be attached to the property that would pass over to the new buyer.
  • Home passing inspection
    another common condition associated with escrow accounts is that the home you are selling passes all necessary inspections. Depending on the state you live in, this may include pest inspections, electric and plumbing system inspections or basic home inspections. Escrow may also include a condition regarding the real estate appraisal coming in at a certain level.
  • Pending loan approval
    typically a buyer will request you, the seller, include a contingency clause in the purchase and sale agreement that specifies if his loan is not approved, he will his full earnest money deposit returned to him.

Understanding Escrow Costs:

Buyers and sellers have the right to find a suitable escrow agent. Depending on the state, the escrow agent may be a specific agency set up for these transactions or may be an attorney. Since the fees for escrow can vary between one and two percent of the purchase price of the home, it is important for you to determine the fees before settling on an agent. In addition to the basic escrow fee, you may also pay fees for:

  • Transferring funds
  • Copying or transmitting documents
  • Office expenses

Who Pays Escrow Costs?

In most real estate transactions, you would be asked to split the cost of escrow with the buyer of your home – but this is not always the case. Depending on what’s negotiated during the offer phase, the buyer may ask you to pick up the full cost of escrow or the buyer may pick up full cost. The details will be outlined in your purchase agreement, so make sure you have a good understanding of your financial obligations before you accept it and move into escrow.

Selling your home is a big step, and it is important to make sure you have a full understanding of how an escrow account works, how these accounts will benefit you as the seller, and to ensure you negotiate a reasonable division of the costs of escrow with the buyer.


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