Who Chooses the Escrow Company: Buyer or Seller?

Escrow plays a key role in many financial transactions, especially in real estate. It involves a neutral third party holding funds, documents, or assets for a buyer and seller until all agreement conditions are met. This process ensures both parties fulfill their obligations, leading to a successful closing.

Common Practices in Escrow Company Selection

The selection of an escrow company often depends on local customs, transaction type, and market conditions. In residential real estate, the party responsible for certain closing costs, like title insurance, often initiates the selection. However, this practice is not uniform. In some areas, the buyer or their agent typically chooses, while in others, the seller or their agent might suggest.

Market dynamics also influence who proposes the escrow company. In a seller’s market, sellers may have more leverage to dictate terms, including their preferred company. Conversely, in a buyer’s market, buyers might have greater flexibility to negotiate and select a provider they are comfortable with. While real estate agents often recommend companies they have worked with, the ultimate choice is a point of negotiation between the buyer and seller, requiring mutual agreement.

Key Considerations for Choosing an Escrow Company

Regardless of which party selects the escrow company, several factors warrant consideration for a smooth transaction. The company’s reputation and experience are important, as successful closings indicate reliability. Experienced officers can resolve potential issues, contributing to an efficient closing. Licensing is also required, as most states mandate escrow companies be licensed and bonded.

Cost is another significant factor, with fees typically ranging from 0.5% to 2% of the home’s purchase price, or a flat fee, varying by company and location. Compare fee structures, which can include charges for document preparation, wire transfers, and notary services. Clear communication from the escrow company is important, keeping all parties informed. Finally, the escrow company’s neutrality is essential, as they must act impartially.

The Role of the Purchase Agreement

While common practices and negotiations guide escrow company selection, the real estate purchase agreement holds ultimate authority. This document formalizes transaction terms, including the escrow holder. If the agreement specifies a company, all parties are obligated to use it.

If an offer names an escrow company, the other party can accept or propose an alternative. Any change must be documented as an amendment to the purchase agreement, ensuring it is legally enforceable. If the agreement does not explicitly name a company, selection is open to negotiation or defaults to local customs. The contract ensures the selection and role align with the mutual understanding and obligations of the buyer and seller.