Portland Real Estate Questions: What is an Escrow Holdback?
Escrow Holdbacks have become uncommon in the Portland Metro real estate market. When I first started to practice real estate in 1999 Escrow Holdback were common.
But, common or not . . . what are they?
An Escrow Holdback:
- Created in a real estate purchase
- Is mutually accepted between Buyer and Seller
- Provides instructions to escrow to holdback proceeds from the sale.
- An escrow holdback is used when the Seller agrees to make repairs on behalf of the Buyer but needs funds from the close of the transaction to pay for them.
In these cases, escrow will holdback funds that are needed to pay for the repairs and pay the contractors, suppliers, vendors directly.
Escrow dislikes doing holdbacks because they have so much paperwork to deal with, accounting and they can get very nasty if there's a problem with . . . anything.
The "what ifs" are too much in the Escrow holdback situation. What if, repairs aren't done timely? What if, the repairs cost more and there is an overrun? What if, the repairs are botched?
It's because of these "what ifs" that escrow in my area typically will not want to get involved with an escrow holdback.
The most common escrow holdback I've seen nowadays is the FHA 203(k) but those types of loans are so detailed that escrow doesn't mind setting up the escrow handbag account.
Also, escrow is required to keep 20% additionally in the holdback. Say the costs of the repairs are $2,000. Escrow will holdback $2,400, and that's to cover the "what ifs."
Also, escrow holdbacks are really discouraged by the lenders as well. They do not like them, underwriting does not like them, escrow doesn't like them and I don't like them.
I've had my experiences with escrow holdbacks years ago and unless there's a really, really, really good reason, I don't suggest my clients to even consider them.