Escrow Costs Revealed: Sellers May Pay These Fees at Closing

During escrow, a neutral third party safely transfers funds and key paperwork related to the transaction between the buyer and the seller; this includes the buyer’s earnest money, real estate fees, loan fees, third party payments, and your profits as the seller.

In exchange for this service, the escrow company charges a fee. According to licensed escrow agent Martin Orefice from Rent to Own Labs, escrow fees typically cost between 1% to 2% of a home’s final sale price.

For all the details on how much escrow costs, we spoke with Orefice as well as top Baton Rouge, Louisiana, real estate agent Tyler LaBauve. Here’s everything sellers need to know about escrow fees.

What are “escrow fees” exactly?

Understanding what people mean when they say “escrow fees” can be difficult, especially because the escrow process involves many moving parts. Orefice explains what escrow fees encompass in plain English:

“Escrow fees are part of closing costs that are directly paid to the escrow company that handles the closing and distributes funds to third parties involved in the transaction.

Typically, escrow fees cover the distribution of funds, paperwork, mortgage origination fee, and other fees that are part of the real estate transaction. Closing costs such as insurance, attorney’s fees, property taxes are escrow costs that are charged by third parties are held in the escrow account until the escrow company distributes them. 

So, basically, you need to pay the entire fee to the escrow company, which eventually handles and distributes it to all the parties involved.”

To review, here’s a short list of what costs escrow fees typically include:

• Holding and distribution of funds
• Mortgage origination fee
• Paperwork
• Title insurance
• Property taxes
• Attorney’s fees

How much does escrow cost on average?

Typically, escrow companies charge a base fee plus a percentage of the sale price. In combination with third-parties fees, the total cost of escrow fees nationally is usually 1% to 2% of the home’s sale price.

For example, escrow fees for a property sold for the national average home price of $312,000 will likely cost between $3,120 and $6,240.

However, escrow fees can vary a great deal from state to state or county to county. Some areas have much lower or much higher fees. The actual cost of your escrow fees will depend on the escrow company and the location of the property.

For example, while the national average can range between 1% to 2% of the sale price, in San Diego, you may only pay 0.20%, or about $1.75 to $2 per $1,000 of the home’s price, plus a the additional base fee of around $200 to $300, depending on the escrow company.

In addition, in some states, the escrow fee amount you pay may be determined by the county in which the escrow is handled rather than the county where the home is located.

Escrow fee estimates by purchase price

Examples based on 1.5% of the home’s purchase price

How can you lower your escrow fees?

LaBauve encourages sellers to shop different providers for the best possible deal.

“You can shop insurance rates which can decrease the amount needed for escrow. You can shop for title companies and loan officers in order to get better fees,” he says. “It’s not a one-trick pony — there are ways to lower escrow because not everyone charges the same amount.”

To lower your overall escrow fees, shop around for deals wherever you can. A good place to start is to ask your real estate agent to recommend a title company with low rates and good service.

Who pays for escrow fees — the buyer or the seller?

In many states, it’s customary for the buyer and seller to split escrow fees or negotiate over how the fees will be divided between each party.

However, whether or not you’re expected to pay for escrow fees also depends on your current market conditions (i.e., whether it’s a seller’s or a buyer’s market) and negotiations between you and the buyer.

Customs vary from state to state

Source: Republic Title

You can negotiate who pays for escrow fees

“Just like any other closing costs, the seller and buyer can negotiate on who decides to pay the escrow fees. Escrow fees can be split between the buyer and seller, paid by the buyer, or paid by the seller in the form of concessions,” Orefice advises.

For instance, LaBauve shares that in today’s seller’s market, more buyers are paying for escrow fees, among other closing costs that sellers would customarily cover. “Previously, sellers would typically pay for closing costs, often up to 6%. But, with the market swinging the way it has and a lack of inventory, a lot of sellers aren’t really covering closing costs,” he notes.

However, the amount of the escrow fee due at closing cannot be negotiated, only who pays what portion can be made a bargaining point.

Escrow fees vary — choose a reputable escrow company for the best price

Escrow companies charge different rates and have varying levels of expertise. Don’t just choose an escrow company for price; a poorly managed company may run into issues that could delay your home sale. Orefice’s advice is to “search for an established escrow company that houses licensed escrow agents.”

A good place to start is to search online for both escrow and title companies in your area. While title companies are not technically the same as escrow companies, many offer excellent escrow services. In addition to searching the web, Orefice tells us it’s a good idea to make use of your real estate agent’s network of professional contacts and ask them for recommendations.

Once you’ve found a few companies that you like, look for customer reviews on sites like Google or Yelp to see what their past clients have to say. Keep in mind that extreme reviews (both positive and negative) are often biased. While overall ratings can give you a general idea of a company’s standard of service, qualitative information in mid-level reviews will provide you with more insight into what people think about them.

Editor’s note: In our original post, we listed an inaccurate escrow fee cost estimate for a home in San Diego, California. The escrow fee example has been corrected.

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