Costs of Selling Your House: Escrow
The Role of an Escrow Company
Escrow is one of the key components in the process of buying or selling property. It is important because a real estate transaction involves large sums of money and reams of documentation. Escrow is not always a predestined, step-by-step process, and can become a confusing end game of details, nit-picking and overlapping procedures. It requires preparation, attention to detail and a desire from both sides to close a deal. A good escrow company is essential to bring a contract to conclusion.
Wells Fargo offers this definition of “escrow”: Escrow is a neutral third party who prepares the legal documents that transfer ownership of the property, holds those documents until conditions of the purchase agreement are met, and then records the documents upon satisfaction of all conditions. Escrow also prepares settlement statements (referred to as HUD statements) itemizing all credits and charges to each party in the transaction and disburses all funds according to the settlement statements and escrow instructions. Escrow also arranges the final signing of all paperwork (including lender paperwork) with both the buyer and seller in the transaction.
In the case of a real estate transaction, escrow opens when a buyer and seller sign a sales contract, commonly known as a purchase and sale agreement and an earnest money deposit is made into the escrow agent’s trust account. In Washington State there are a number of institutions that can perform the function of an escrow agent (e.g. a law firm, a bank, a Title Company, an escrow company).
In a Home Sale, Who Chooses the Escrow Company?
Regional custom will dictate who (the buyer or seller) chooses the neutral third party (escrow company). Some regional areas use title and escrow attorneys. My experience has been that the seller generally lines up an escrow company in advance of putting his/her home on the market. Many times, the seller’s agent has experience with numerous escrow companies and will make a recommendation for a particular company. It is not uncommon that the buyers will negotiate an escrow company of their choosing during a transaction. For new construction the buyer will almost always be required to use the builder’s escrow company.
How Much Will It Cost for Escrow?
Escrow costs often depend on the value of a home, market conditions and custom. In an average sale, escrow can run from $800.00 to over $1000.00. This cost is split equally between the buyer and seller. You should know that escrow fees are not regulated by the state. Some escrow agents will offer a low escrow fee, but charge you other incidental fees related to the transaction, which increases the total escrow fee. Other incidental costs may include:- Wire transfer fees
- Tracking or re conveyance fees (a re conveyance fee is what title insurers charge you to cover the cost of removing your current lender’s lien from your property title when you refinance)
- Trustee fees
- Electronic document fees
- Courier fees
- Fax fees
- Copying fees
- Trust accounting fees
The escrow agent should provide you the total fee amount he or she will charge you so you can compare prices or fees effectively. As in all things financial, make sure you do some comparison shopping to better understand the market place.
Let’s add up the costs so far. In my first post in this series, we used the example of a $350,000 home. The excise tax will be $6,230.
Now, when we add in escrow, here’s what we get: $1000 divided by buyer and seller = $500 $350,000 sale price X 1.78% = $6,230 Total so far = $6,730
In the next post we will take a look at the role title Insurance plays in the sale of your home.
I would like to thank Julie Satko of First American Title for her generous help and advice on this post.
James is a skilled and knowledgeable Associate Broker & Realtor with Keller Williams. Whether he’s selling an existing home or helping clients find their dream home, he provides quality real estate services in residential properties and relocations.
James and his wife Virgina have lived in Seattle since 1986 and bought their first home, a 1940’s project, in 1989. James is passionate about the Pacific Northwest and is dedicated to helping others find their home here.
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