If you are looking to sell or buy a piece of land, condominium unit, stocks, a building, or any type of real estate, you would most likely have to pay an escrow fee. This is a charge that will stump most first time home buyers and sellers alike, so be sure to read the rest of this short article as we explain what an escrow fee is and how much do you have to pay for it.
What is an Escrow Fee?
Escrow, by definition, is an act in which a third party (usually a financial institution or a lawyer) takes custody of a certain asset or amount of money before all the agreed upon conditions of a contract or written business agreement are fulfilled. To illustrate further, when we say that a home buyer’s payment is in escrow, it means that the money paid by the buyer is temporarily being kept by a neutral third party while the seller makes sure that all the home inspection, loan approval, and title processing is being taken care of. Once all these conditions are met and the home buyer gets what was agreed upon, the seller will then receive all the payment that was previously held in escrow.
How Much is the Escrow Fee?
As we have mentioned earlier, escrow fees and costs usually stump most first time buyers and sellers because it has no fixed amount. The actual cost of putting something in escrow generally varies depending on the kind of transaction, the market assessment results, and the agreement that a buyer and seller come up with. As a rule of thumb, the escrow fee is about 1 to 2 % of the property or asset’s total selling price.
The total escrow fee covers the services and time of the financial institution or lawyer who brokered the transaction. In some cases, some escrow companies may set up a separate service charge on top of the usual 1-2% computation. You may also see legal agreements.
Who Should Pay for the Escrow Fee?
Ideally, escrow fees are paid for by both the buyer and the seller. When two parties are in agreement, they can ask for a firm’s or an attorney’s escrow service fee proposal ahead of time and factor in this cost along with other transaction closing costs. Then, both parties can then split the bill in half and pay it separately.
In other cases, only one party may have to pay the escrow if the two parties agreed to do so. This kind of financial agreement may occur when a seller encounters a reluctant buyer. The seller then opts to pay the escrow fee to help convince the buyer to buy a property or asset. You may also see payment agreement templates.
The most common industries that use escrow services and require escrow fee payments are the real estate industry and the stock market. In these industries, sales transactions are usually brokered by banks, financial institutions, and lawyers. This is done to provide legal credence to the whole transaction. You may also see sample vendor agreement templates.
In addition to this, buying and selling some services or assets may still be processed by an escrow firm. Assets like websites, domain names, art, jewelry, software programs, contracted services, vehicles, antiques, and even tickets can be safely sold and bought using escrow firms. When two parties are in agreement over certain conditions or terms, these items can then safely be exchanged.
A Few Takeaways
Now that you know what escrow fees are and how much they cost, use this knowledge in making well-informed decisions and business plans. Always remember that when it comes to selling or buying anything of value, you need to factor in any transaction closing costs because the total amount that you will need to pay for may be more than the actual selling price.
For more business articles and explanations regarding business-related topics, feel free to browse through our website.