An escrow is a neutral third party that handles transactions between buyers and sellers where money and legal documents are exchanged at closing. Escrows are commonly used in transactions involving real estate. On Federal Housing Administration (FHA) loans and conventional loans, the escrow fee is negotiable between the buyer and seller; however, the fee is customarily split 50-50. On Department of Veterans Affairs (VA) loans, the buyer is not permitted to pay the escrow fee.
Determine the Escrow Fee
Each escrow works on an independent fee structure. Some escrows charge based on a flat fee and others charge on a scale based on the purchase price. Some charge for services directly related to the borrower such as loan document copying or new homeowners insurance requests. Others charge for seller related charges such as association transfer documents and transfer deeds. Contact your escrow company before opening escrow to determine all applicable fees.
Negotiate Who Pays
No legal requirement exists for who pays the escrow fees except for VA loans where a VA buyer is not permitted to pay escrow fees. Most purchase contracts have a section that specifically addresses how escrow fees are to be split. The fees are completely negotiable. For example, if a buyer is making a low offer, then he might be asked to pay all of the escrow fees by the seller. Also, if several buyers are competing for a single property, the real estate agent representing a buyer might suggest that the buyer pay all of the escrow fees to enhance the offer.
Other Charges in Escrow
Some charges may occur in escrow that specifically relate to the buyer or seller. These are typically paid by the party to whom they benefit. For example, a seller may have an escrow fee in connection with ordering a loan payoff statement with their existing lender. This charge is usually between $50 and $100 and the seller pays it at close of escrow. Buyers may incur charges that relate to their new loan such as a loan re-draw fee. This would be paid by the buyer.
The choice of escrow companies is also completely negotiable between all parties. The seller may prefer a certain escrow but the buyer might insist on another company because its fees are more reasonable. This is a matter negotiated in the purchase contract. For example, if a buyer insists on using a particular escrow, the seller might agree, but stipulate that the buyer pay all the fees.