An escrow holdback is a portion of the property price held back by a third party. Meanwhile, these funds are being set aside for necessary repairs. What this often does is incentivize buyers or sellers to complete the repairs, to be then refunded for the expense. Some common reasons for an escrow holdback agreement are:

• Issues uncovered by the home appraisal

• Incomplete repairs or renovations that were agreed upon by the seller

• To ensure buyer or seller gets their refund after repairs are complete

• Appraiser or underwriter requires repairs as a condition of a loan

• Satisfy health and safety requirements for the property

Escrow Holdback Agreements Explained

The existing agreement, or real estate contract, can be amended to include repairs or renovations needed. Additionally, costs associated with the repair may be listed in the contract so that buyers and sellers can see how the completion deadline will factor into the process. Laborers who will complete repairs join the picture to ensure payment, though escrow holdback parties may also choose to complete any repairs themselves.

The buyer and seller must sign the agreement before going to the financing entity. As long as the underwriter is satisfied with the terms of your contract, the escrow holdback will receive approval. From there, lenders designate an in-house escrow account for the funds.

The Role of the Seller

Naturally, sellers are enthusiastic about closing dates. Since they are generally responsible for setting aside funds for the escrow, the holdback agreement is valuable since they can close while repairs are in progress. The buyer receives the money in the account if the repairs do not align with the contract, which keeps things running smoothly. The property sale may also fund the escrow account if the seller needs the deal for funding.

How an Escrow Holdback Helps Buyers 

Pushing back the closing day on your home is not ideal. However, when repairs are needed or a health and safety condition must be met, you don't want to be stuck footing the bill. Finalizing the transaction can still occur, and an escrow holdback can ensure that the repair is done. Setting aside funds will usually incentivize a seller to bring the state of the property up to a standard determined by a lender or between buyer and seller. The funds are then held in a lender's escrow account. Not having to dip into your savings account to complete these repairs is invaluable.

A home might require simple landscaping or extensive septic repair before a purchase is finalized. These conditions can be written into an agreement to set aside funds for the repairs. The seller is providing funds, so a cushion over the projected repair costs is often required if the repairs cost more than anticipated. Working with a professional team can help educate you on your options under escrow holdbacks.