How are real estate escrow accounts used at closing?
It sometimes happens that not all agreed promises found in a sale agreement can be fulfilled by closing. For instance, if closing takes place in January in a cold climate it may not be possible to test the air conditioning system.
How does the buyer know the system works? It’s best to wait until warmer weather to test the system.
But what if something is wrong with the system? Who will pay for repairs or replacements? To resolve buyer concerns, an “escrow” account can be created at closing. In this situation, money from the seller is held in reserve until a certain date to pay for needed repairs as defined in the escrow agreement. If repairs are not required, or if the cost is less than the amount of money set aside, the difference is returned to the sellers.
Because an escrow account created at closing can hold a large sum over several months, the parties to the sale should decide how any interest is to be credited.
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