Ok, ok… before we get started. Let me preface this by saying that escrow agents are awesome! They have high pressure jobs often bearing the brunt of frustrated sellers, angry buyers, impatient Realtors, slow lenders and they do it all with a smile and often a fresh baked cookie!
However, as a Realtor, you need to be very careful when taking the advice of an escrow agent when sitting at the closing table trying to resolve some kink in the closing plan.
Recently, one of my buyer’s agents reached out to me. She had gotten involved in a position familiar to many of us. Her buyer was very anxious to close on their new home. It was right before Christmas and they really wanted to move in over the holidays. Plus, they were facing the expiration of a rate lock.
The seller, however, had not finished all the agreed upon repairs. There were a few minor things that still needed to be completed and an open permit that needed to be closed. The seller was also very motivated to close before the holidays.
As an inducement to move forward with closing before the repairs were finalized, the seller offered to place $1,000 in escrow for the buyer to recover should the seller fail to complete the repairs as agreed. The escrow agent told the parties that she could not hold any money in escrow post closing. Instead, she suggested that the seller give the buyer a check outside of closing to hold as assurance that the repairs would be completed. The buyer and seller agreed to this plan so that they could move forward with closing.
In a perfect world, the seller would do the repairs after closing and the buyer would return the $1,000 check to them and everyone would be happy. But, this is real estate. You think it really went down that way?
No, it did not. Instead, during the completion of the repairs after closing some damage occurred to the property. Now, everyone was in a sticky situation when the seller didn’t immediately agree to take responsibility for the additional damage. What were the buyer’s rights to that check? Was the seller responsible for the repairs? Would the check even clear the bank? There was nothing in writing as to the handling of this money and in what circumstances either party had a right to it.
The escrow agent was very smart not to accept responsibility for the money. While the Realtors should not have taken her advice to handle this outside of closing they SHOULD have followed her lead. She knew very well that if anything went sideways she would be involved in quagmire that may end up being settled in court.
As Realtors, we want to do everything we can to ensure a smooth transaction on the timeline of our clients and we are often anxious to try to find a solution to problems that arise. In doing so, we may put ourselves at risk of getting into the quagmire as well. New agents may be especially tempted to take the advice of someone who has more experience or expertise than them. My agent was shocked when I told her she should not have taken that advice. She just assumed that if the escrow agent suggested it there was no reason to be concerned.
My advice is that if the escrow agent is telling you they cannot do something and perhaps it should be done outside of closing think hard about why it needs to be done outside of closing. Think like a broker and wonder “what could possibly go wrong?” Then, educate your clients on the risks and recommend another course of action. Personally, I would have recommended either an extension or a concession for the undone repairs.
Ultimately the seller made good on the repairs, the buyers returned the check to the seller and my agent learned a valuable lesson. Before you take the advice of the escrow agent to handle something outside of closing, call your Broker and get their opinion first!