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What Are Escrow Fees?

TLDR

What You Need To Know

  • Escrow fees pay your escrow company for the services they provide
  • The escrow fee costs between 1% – 2% of the home purchase price
  • Depending on what’s negotiated, the buyer and seller can either split the escrow fee or one of them pays it

Contents

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“Selling Sunset” fans (bear with us if you aren’t binging the real estate reality show), do you remember the episode when fan-favorite real estate agent Chrishell Stause had to sit and calculate a long list of closing costs, collect money from her client and make sure all the parties involved with the closing got paid?

No? Can’t recall?

Well, that’s because it never happened. An escrow company takes care of all of those services for Chrishell (and all real estate agents) and their clients. 

The period between getting your purchase offer accepted and closing on the home is commonly referred to as “being in escrow.” After you close, a portion of your monthly mortgage payments gets deposited into a second escrow account through your loan servicer to cover your property taxes and home insurance.

We’re focusing on how an escrow provider helps you close on a home. We’ll take a look at how escrow providers are compensated for their services and what escrow fees are charged. 

Escrow fees, or more specifically, escrow servicer fees, are paid to the escrow company for their services. The fees are a part of your closing costs. 

We’ll explore escrow service fees, examine what you pay for and show you how to calculate those fees.

What Escrow Servicing Fees Pay For

Escrow fees pay your escrow servicer for managing and distributing the money put in escrow during closing.

Below is a list of services your escrow fees might cover:

  • Holds funds to be paid out after the closing on your property
  • Distributes the money placed in escrow on time and to the right parties
  • Prorates and pays property taxes on behalf of the buyer
  • Takes on the liability of managing the buyer’s money
  • Preserves the accuracy of the title, deed and other closing documents
  • Acts as a neutral third party between the lender, the buyer and the seller

Calculating Escrow Fees

Escrow services usually cost 1% – 2% of a home’s purchase price. If you’re buying a home for $100,000, the escrow servicing fee would be around $1,000 – $2,000. 

That range, however, is an estimate. The true cost of your escrow servicing fees can vary based on a few things:

  • The escrow company you use
  • The location of the home
  • Whether the escrow provider charges an additional flat fee

Funds Paid Into Escrow

Let’s explore some of the funds you’re paying your escrow provider to collect and distribute. These are made up of a variety of fees, taxes and insurance premiums. 

Here are a few standard things paid into escrow:

  • Property taxes: Closing costs generally include paying 6 months of property taxes upfront. 
  • Mortgage loan origination fee: The loan origination fee pays your mortgage lender for underwriting and processing your loan.
  • Title and deed search fee: The search fee pays for a title search company to check that there are no claims or liens on the house.
  • Title insurance payments: Title insurance protects against claims on your home’s title.
  • Homeowners insurance payments: Home insurance covers unexpected damage to your home.
  • Real estate attorney fee: A real estate attorney reviews all closing documents. 

Who Pays the Escrow Fees?

There is no stock answer to the question of who pays the escrow fees. The answer will always depend on the situation. The buyer, the seller or both parties could be responsible for paying the fees.Who pays for what always comes down to negotiations and what each party is willing to pay. While the easiest thing to do might be to split the fees, it’s not always done that way. The buyer may pay for the entire thing, or the seller could pay the fees as part of their seller concessions.

Escrow May Not Be Glamorous, But…

Escrow fees may feel like an unnecessary expense, but this fee covers some essential services during the closing process. 

  • They are a third party that holds the buyer’s and seller’s money until closing. 
  • They manage and distribute all the money from closing on a house to the appropriate parties so you don’t have to.

Sure, we’re willing to admit that escrow may never be a star player in your favorite real estate reality TV show, but it’s important. Escrow service fees pay for a valuable service and can help ensure a smoother closing process.

ICYMI

In Case You Missed It

  1. The period between getting your purchase offer accepted and closing on the home is popularly known as “being in escrow”

  2. Escrow manages the fees, insurance premiums and taxes paid at closing and pays them out to the appropriate parties

  3. Escrow fees can vary depending on the escrow company, location of the house and whether the company charges a flat fee

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