Escrow Fees: What Are They, and Who Pays Them?

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By Jared Lindstrom Updated October 11, 2024
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Edited by Erin Cogswell

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Escrow fees are part of the closing costs for a real estate transaction. The fees are paid to an escrow company, title company, or real estate attorney and are typically split between the buyer and seller.

On average, escrow fees cost 1–2% of the home’s purchase price. They cover necessary administrative and legal costs for finalizing a real estate transaction.

Expert real estate agents who have developed relationships with dependable escrow companies in your area will be able to explain everything to you. This way, you’ll be prepared and know exactly how much escrow costs.

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What are escrow fees?

Many people use escrow fees as an umbrella term for the costs associated with real estate transactions. Standard fees that fall under escrow include:

  • Property taxes
  • Attorney fees
  • Title insurance premiums
  • Document preparation
  • Notary services

Your escrow company will tell you if you need to pay any less common fees, such as costs for expedited shipping, flood insurance, or homeowners association (HOA) fees.

Who pays escrow fees?

The buyer and seller typically split escrow fees. However, you can negotiate and specify who pays escrow fees in the purchase agreement.

Market dynamics, the type of transaction, and special conditions like foreclosures significantly affect how much each party covers. For example, you could negotiate for the seller to pay escrow costs if you pay cash while the market favors buyers.

In certain areas, it’s customary for one party to cover all the escrow fees.[1]

Sellers cover escrow in:Buyers cover escrow in:
Southern CaliforniaLouisiana
Maryland
Northern California
West Virginia
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How much are escrow fees?

According to Mortgage Investors Group, escrow costs are 1–2% of the property’s value.[2] For example, the total escrow of a $300,000 home is $3,000–$6,000. However, escrow fees vary from sale to sale. Factors that affect rates include:

  • Location
  • Property tax rates
  • Insurance premiums
  • Attorney costs

Before agreeing to the terms of your escrow, carefully review the contract and consult a real estate attorney if you need clarification on anything. You may reduce your escrow fees by negotiating with the escrow company for better terms.

How the escrow process works

  1. Open an escrow account and deposit earnest money. After agreeing on a price, the buyer and seller sign a purchase agreement to start the escrow process. Your real estate agent will work with you to open an account, collect earnest money, and deposit it into escrow as a sign of good faith.
  2. Undergo a title search and acquire insurance. Title searches evaluate the home’s history to ensure the property’s title is clear and transferable. You also acquire title insurance at this stage to act as a safety net against future claims on the property’s title.
  3. Complete property inspections and negotiate. Once the money is deposited, a home inspector completes a thorough inspection to ensure the home meets expectations. Any problems the inspector finds will need to be addressed before the sale is complete.
  4. Complete the appraisal process and secure financing. After the home inspection, buyers can negotiate a lower purchase price or for the seller to repair problems found during the inspection. The buyer’s lender will then perform an appraisal to determine fair market value and offer financing.
  5. Review and sign documents. After securing financing, the buyer and seller meet to sign documents that finalize the sale. These include the closing disclosure of final costs, the deed, loan documents, and other required paperwork.
  6. Fund the escrow account. The buyer deposits the remainder of the down payment and closing costs into the escrow account. From there, the lender wires the remaining payment into the account.
  7. Close escrow. The escrow company performs a final evaluation to determine whether all the conditions for the sale are met. If everything checks out, it distributes funds to necessary parties and officially transfers ownership by registering the deed with the local government.

What is escrow?

Escrow is a third-party service that serves as a safety net for buyers and sellers during a real estate sale. It uses a neutral account until both parties meet the requirements to ensure a proper sale.

Buyers and sellers work with an escrow company to manage the process and keep it moving smoothly. This process includes fees paid to:

  • The escrow company for facilitating the process
  • The necessary parties for completing legal and administrative duties during the sale

What are the conditions of escrow?

Conditions of escrow are certain obligations listed in the escrow agreement that each party must comply with before the deal can move forward. A real estate transaction can't close until all terms have been satisfied by the deadlines in the escrow agreement and both parties have signed the appropriate documentation.

Here are some of the most common conditions of escrow that must be met before closing in real estate:

  • The buyer's lender does an appraisal and approves financing, which is transferred to the escrow account.
  • The escrow account pays property taxes, homeowners insurance, and mortgage insurance (if required) on behalf of the buyer.
  • The seller completes any repairs that were discovered during the inspection and agreed upon in the purchase and sale agreement.
  • The title report shows the title is clear of any liens.
  • Title insurance is purchased to protect the buyer and lender of any legal challenges that didn't come up during the title report.

Once all the conditions specified in the escrow agreement are met, the transaction can move to closing.

How to find a reputable escrow company

People evaluate escrow services through different avenues before choosing the right one.[3] Sourcing referrals and talking with previous customers are two reliable ways to learn if an escrow service is legit. You can also do the following:

  • Analyze its online reviews
  • Look up the company’s licensing and insurance
  • Ask for their portfolio of prior deals

Don’t settle on the first company you find. Instead, interview multiple escrow services to get the best deal. Many real estate agents can recommend trustworthy services to evaluate. The right company will help you keep your transaction costs straight to ensure the process goes smoothly. 

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Top FAQ about escrow in real estate

What happens when a house is in escrow?

When a house is in escrow, the real estate transaction is in its final stages. Once a buyer makes an offer that a seller accepts and a purchase and sales agreement is drawn up, the buyer will make an earnest money deposit on the house. That deposit opens the account, and the escrow process begins.

Each party has different tasks they must complete during this process. For buyers, this could mean securing financing and fulfilling any requirements of their mortgage lender, such as paying property taxes, homeowner's insurance, title insurance, and private mortgage insurance. Inspections and appraisals may also happen at this time. 

Sellers will most likely take the home off the market and make any agreed-upon repairs.

What does it mean when a house falls out of escrow?

A house falls out of escrow when the negotiated terms of the purchase contract can't be met. This can happen for a variety of reasons: 

  • The buyer may not qualify for a mortgage. 
  • The home inspection could turn up serious issues that the buyer and seller can't agree on. 
  • The appraisal ordered by the lender could come up short, leaving the buyer unable to meet the purchase price. 
  • The title search could reveal hidden liens on the property that must be sorted out before the seller can legally sell the house.

How long does a house stay in escrow?

A house stays in escrow until the requirements laid out in the escrow agreement have been satisfied. As long as the inspection reveals no additional issues, the buyer qualifies for funding, and the title is clear, a house usually stays in escrow anywhere from 30–60 days. Of course, this can be much longer if unexpected issues pop up.

Do you get escrow money back at closing?

Escrow money is the fee paid to the escrow service, title company, or attorney who handles the account and processes. It's not a deposit, but someone must pay those fees to the escrow officer. Unless the buyer and seller have negotiated who pays the escrow fees, they usually split these fees down the middle.

What happens to money in escrow if the buyer backs out?

If the buyer backs out of the sale, contingencies in the purchase agreement — and when and why the buyer backs out — will determine what happens to the earnest money in escrow. Sellers don't like contingencies in a contract but may agree to them in a buyer's market. A loan contingency, an appraisal contingency, and a home sale contingency are most common.

Contingencies say that if certain conditions aren't met before a certain date, a buyer can back out within a specified window of time and keep the earnest money. Otherwise, if a buyer simply gets cold feet and backs out, the seller is usually entitled to keep the earnest money.

Are HOA fees included in escrow?

Yes, some HOA fees fall into escrow. But it’s important to read the details of your escrow agreement because HOA fees aren’t included with every escrow account.

How are escrow fees calculated?

Escrow fees are calculated based on several factors, including: 

  • The selling price of the home 
  • Property tax rates 
  • The complexity of the transaction
  • Where you’re located 
  • How long escrow lasts 
  • Special services provided by the escrow company

What’s included in escrow fees?

Escrow fees include legal and administrative fees paid during the closing process on a home. Property taxes, attorney fees, title insurance and search, document preparation, notary services, and fees paid to the escrow company often fall under escrow fees, but this list isn’t exhaustive.

Are escrow fees tax deductible?

No, not all escrow fees are tax deductible. However, some of the fees you incur during escrow may be deductible. It’s essential to consult a knowledgeable tax expert before assuming which costs count as a tax write-off.

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