Archive for December, 2010

Escrow Fees

December 15th, 2010

There’s no free lunch. Escrow companies have the same expenses that other small businesses have: employee payroll, health insurance, E & O insurance, rent, postage, accounting, legal, advertising and computers to name a few. These expenses are met by charging fees to the parties to the real estate contract. Your clients will ask you about these fees. These fees vary from Escrow Company to escrow company across the state. Furthermore, any escrow company can service any real estate contract, regardless of where the property is located in the state. Almost everything is done by mail. Who pays these fees is negotiated between buyer and seller when the purchase agreement is negotiated. The buyer can pay all the fees, the seller can pay them; they can split them 50/50 or 70/30. It’s negotiable.

I will attempt to explain the most commonly charged fees. Most escrow companies have them posted on their websites. These fees differ from company to company.

The Set-up Fee: This fee can range anywhere from no charge to $50 depending on the escrow company. This is charged through the title company at closing on behalf of the escrow company. It is a one time charge. The rationale for this charge is that the escrow company has to enter into the computer all the terms of the contract, place the deeds in a fireproof safe, send out an amortization schedule, and mail payment coupons to the buyer. We do not charge a set up fee.

Disbursement Fee: This is an ongoing charge, which is usually charged monthly. This fee is based on the amount of the payment that is received from the buyer. For instance, if the buyer’s payment is $900, then the escrow company might charge a $10 fee. If the buyer is suppose to pay 100% of the fee, then they would send in $910 every month. If the seller pays 100% of the fee, then the buyer would send the escrow company $900 and the escrow company would subtract $10 and send the seller $890. This fee is an escrow company’s main source of income, which pays the bulk of the expenses.

Additional Disbursement Fee: Let’s say two sisters are the sellers in the property and they wanted the escrow company to send each sister a check for $450 every month. Using the example above, there would be a fee of $10 for the first check disbursed and the charge of $3, or so, for the second check disbursed.

Taxes and Insurance Escrow Fee: As I’ve stated in previous articles, the number one dispute or concern when it comes to a real estate contract is not over the monthly payment, but over whether or not the property taxes and/or hazard insurance premiums have been paid by the buyer. The escrow company can escrow funds monthly to pay these items if the buyer and seller agree to this and put it n the REC. There is usually a monthly charge of around $4 for this service. Believe me; this service is well worth every penny. Most escrow companies charge a monthly fee for this and some charge another fee when they write the check to the county or the insurance company.

Close-out Fee: This is a one time charge. A real estate contract typically closes out at an escrow company in one of two ways. 95to 97% of the time the buyer simply pays the contract off over time and the escrow company gives them the warranty deed that the seller delivered to the escrow company at closing. Before this is done the escrow company reconciles and reviews the account to make sure the seller received all monies due, or that the buyer has not overpaid. On the other hand, 3-5% of the buyers default and the sellers take the property back by terminating the REC. In this case the escrow company decides if it was a valid default and, if so, releases the special warranty deed to the seller that the buyer delivered to the escrow company at closing. This fee varies statewide and can be anywhere from $25 to $125.

Fees should be important to you and your clients. But fees should not be the one and only deciding factor as to which company to choose. Seller financing and real estate contracts are a long term commitment and investment. Your client should choose an escrow company that they feel comfortable with. Things change during the life of a contract and in the life of the buyer and seller. Your client needs to pick an escrow company they feel has the experience and knowledge to carry out the instructions put forth in their contract.