How Much Does an Escrow Transaction Cost?
July 20, 2023No matter how you look at it, escrow transactions involve a financial expense. The exact amount of money will depend on the type of process you follow, but escrow transactions in general require mutual understanding between sellers and buyers, where both parties accept specific responsibilities within a strict deadline.
You also need to consider the part of multiple third-party agents validating the process from a neutral standpoint. They can also be tasked with managing a client's financial information, reviewing documents, issuing insurance policies, and other services that can only be handled by a licensed professional.
These are all costs that need to be added to the purchase price while evaluating your finances. You should also expect to make some modifications after the first round of negotiations.
Now, it doesn't help to get stressed over the costs of homeowner's insurance and other individual services. First, we need to acknowledge the importance of escrow transactions as a series of steps leading up to closing after an offer is accepted. If you're ready to make a huge financial investment, you might be surprised while saving up money for your escrow fees.
The Escrow ProcessAfter the seller accepts a buyer's offer, the buyer makes the initial deposit to the escrow account. This is known as earnest money and serves to prove the buyer's commitment to following the process all the way to closing. A title and escrow company is hired to oversee the procedures and protect the funds in the meantime. If the transaction falls through, the agent will act in the best interest of both parties, holding or releasing the funds as stipulated in the escrow agreement.
In most cases, escrow fees are paid as part of the closing costs at the end of a real estate transaction. These fees come from the services provided by real estate agents and title and escrow companies. As such, escrow costs usually refer to expenses related to property taxes, title searches, insurance policies, etc.
Here's a list of transactions/services that usually count as escrow fees:
- Mortgage fees placed by lenders
- Real estate fees, or hourly charges from real estate services.
- Legal costs and attorney commissions.
- Title insurance
- Property taxes
- Seller's profit
- Municipal fees and other government payments, as well as third-party payments
After closing, the escrow agent transfers the funds to the seller and the seller's commission fees. Escrow agents are also in charge of recording the transfer to the new owner.
As you can see, there are many separate payments involved, so it's important to calculate the exact costs as soon as you start the process. Of course, other fees could be added throughout the process if you require additional services. A real estate agent with a good reputation in the local real estate market can help you adjust your calculations and navigate unexpected changes.
Who Pays the Escrow Fees?Escrow fees are usually split between seller and buyer. While costs can be evenly divided between the two parties, the initial negotiations will determine who will be responsible for covering specific costs.
It's more common for buyers to pay most of the escrow costs, especially when the property is in high demand and they want their purchase offer to stand out. This is also expected in Florida closings, with buyers often making larger payments when it's time to cover escrow and closing fees.
Both parties can also agree to have either the buyer or the seller in charge of all escrow costs, depending on specific circumstances.
Don't be afraid to ask for guidance from your real estate agent. You need to be clear about the total costs and other conditions before signing the sales agreement.
Calculating Escrow CostsAt its highest, the cost of an escrow transaction is between 1% and 2% of the purchase price. For example, if a real estate property is sold at $40,000, escrow fees will amount to around $4,000-$8,000.
Other factors can also affect the final cost of escrow transactions. Each state operates under a particular price range that's influenced by the tax system. In turn, a property's location within a particular county or community will also be taken into account, as some areas have a higher market value while others are more vulnerable to natural disasters. In some exceptional cases, escrow costs can be as high as 4% of the property price.
The escrow process itself will also look different from one transaction to the next. Prices will obviously change depending on the payment system you've set for your escrow account, the type of mortgage, homestead exemptions, and the property's insurance rates.
Don't hesitate to bring your questions to Key Title & Escrow if you want to prepare your budget before diving into the escrow process. And if your real estate process is already underway, it's never too late to get the best support system so you can avoid disputes over escrow costs.
Key Title & Escrow provides a thorough list of services at the most accessible prices. We can help you with each step of your transaction so you don't have to spend extra time looking elsewhere for different title and escrow services. Each process has its unique in its own way, and we're ready to adjust our methods to what you need. Don't be afraid to ask questions or leave suggestions for our team, we always value your feedback. Call (305) 235-4571 or toll-free at (800) 547-0006 to get in touch with our team. You can also fill out the contact form on this page and we'll prove why Key Title & Escrow is the best option for your real estate transactions in South Florida.