Portland Real Estate Questions: What is an Escrow Holdback?

Industry Observer with RETIRED / State License is Inactive Inactive License Oregon

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.

Posted by



Carla Muss-Jacobs has RETIRED effective May 1, 2018

Representing Buyers in the Portland Metro Real Estate Market | Clackamas Multnomah and Washington Counties | Since 1999

Carla Muss-Jacobs, REALTOR®, ABR, CEBA, ePro
Principal Broker/Owner ~~ INACTIVE

Carla Muss-Jacobs' retirement became effective May 1, 2018

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Jane Peters
Home Jane Realty - Los Angeles, CA
Connecting you to the L.A. real estate market

Thank goodness I have never had to deal with an escrow holdback.  This is a great explanation for those who might need to avail them selves of one.

Jun 05, 2012 10:50 AM #1
Brenda Mullen
RE/MAX Access - Schertz, TX
Your San Antonio TX Real Estate Agent!!

Very good information Carla.  I haven't heard of an escrow holdback here in Texas.  Usually any repairs that the seller agrees to need to be completed before closing.  Now, our escrow comany will pay the contractors from the proceeds of the sale and it will all be on the HUD1, but as far as I know, (unless a 203K), I don't think they do the escrow holdback thing.  I will have to check on it though.  

Jun 05, 2012 11:29 AM #2
Mary Stewart
HomeTrust Real Estate, LLC, Homes for Everyone - Wilsonville, OR
Wilsonville and Surrounding Portland Metro Areas

Carla, I have a transaction now that we are doing an escrow hold-back, the only way we can get the transaction closed.  Short sale, needs new roof, seller cannot pay, bank will not pay, lender will not lend without it.  Buyer certainly will not put on new roof without being in title, not that he couldn't but why would he.  The lender I am using does this on occasion and it has caused no problems he says.  Buyer is willing because he wants the house, so hopefully underwriting will be fine with all.  There are certain guidelines to be followed and you just do it even though it is more steps in the transaction.  Good post with lots of information.

Jun 05, 2012 11:35 PM #3
Michael Jacobs
Coldwell Banker Residential Brokerage - Pasadena, CA
Los Angeles Pasadena Area Real Estate 818.516.4393

Carla -- I think escrow hold backs have disappeared in our market place especially with a sale with financing -- lenders want to see that any work agreed in the purchase agreement has been completed and paid.   In addition to lenders, I am certain escrow does not like the idea of being the arbiter when a project has been successfully completed.  

Jun 06, 2012 05:13 AM #4
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Hi Jane . . . I've done them in contracts before, but it's been awhile.  The reason I wrote this is because a recent client wanted the sellers to put money in an escrow holdback and it killed the deal.

Hey Brenda -- yes, the FHA 203(k) loans will have those specifically because of the re-habbing associated. Thanks for the comments!!

Hi Mary . . . that's another way to use them and they do come in handy, if underwriting gives their thumb's up.  

Hey Michael -- I know the escrow officers would prefer not to be involved, but if they must they must.

Jun 06, 2012 08:18 AM #5
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