Reasons to List With Professional Real Estate Agent (This is the last of a series of 10 real life situations)

Why would you escrow for repairs?

Days before closing a condo the selling realtor called me, as Carl’s buyer’s agent, to report the toilet has leaked into the condo below. Upon inspection, it also leaked behind the sink cabinet, the corner cabinet and under the flooring in both the bathroom and the laundry room in the next room.

Closing was delayed to allow the seller’s insurance agent to remediate any mold, finalize repair costs and arrange reconstruction.

Ten days later, although the insurance agent assured all that the claim would continue beyond closing the transaction, the Carl was uneasy about the work not being completed and/or any pending costs to the buyer. If that should occur and the repairs were not completed, the buyer’s only recourse would be through small claims court. I recommended a small escrow of $5,000.

In another recent situation, Dave and Kathy were in the process of purchasing a home when it was discovered through septic inspection that the home had a failed septic system. The sellers readily agreed to repair the system that could not be completed until after closing date, due to inspections and construction schedules.

The sellers escrowed $10,000. The final cost was $8,400 and the remaining funds were released to the sellers after the work was complete.

What Is An Escrow for Repairs?

Bigger Pockets defines an escrow as: A repair escrow is simply an agreed upon amount of money taken out of the sellers proceeds at closing. The funds are held by the escrow agent or attorney to be used by the buyer for specific repairs made after the closing.

An escrow holdback, or repair escrow, starts with an addendum to the real estate contract. The addendum details the repairs to be made, the estimated cost for the work, the deadline for completion and how contractors will get paid.

Specifically What Can Be Subject To Escrow?

Any specific repair or pending inspection regarding the sale of real estate could be subject to escrowed funds.

For example, if closing occurs during the winter in Michigan, chances are there may be snow on the roof. That snow covering the roof would prevent an adequate inspection of the overall condition of the roof including shingles, vent pipe boots, etc. An escrow recommendation may be the cost of a new roof just in case that roof is not in good condition.

Swimming pools in Michigan are typically open between Memorial Day and Labor Day. If a closing on a property occurs at times other than these holidays, pools are usually covered and not accessible for inspection. This would be a recommended escrow of around $20,000 in the event the pool is not working properly.

Matt choose to have the seller pay a portion of his closing costs in exchange for Matt making any pool repairs himself. This avoided the need for an escrow.

Other Escrow Reasons

Anything related to the condition of the home that cannot be rectified prior to closing could be subject to a repair escrow.

Some examples of issues that often lead to an escrow holdback include, but aren’t limited to:

• Deck
• Driveway
• Exterior paint
• Fence
• Final grade
• Gutters
• Landscaping
• Lawn seeding
• Patio/porch
• Pest treatment
• Sod
• Sprinklers
• Walkway(s)

This isn’t an exhaustive list, according to Rocket Mortgage. Specific terms vary from situation to situation – including what repairs get covered – so be sure to speak with your real estate agent for guidance.

Contact Us

Tucker Benner Realty agents are trained and experienced in repair issues and possible escrows. Call or text 231-730-8781 with questions.

Marilyn Tucker