An escrow holdback is money retained from a real estate transaction in an escrow account. This retention is used mostly for the purpose of protecting the Buyer from repairs needed to be completed by the Seller.
Not only does this help the Buyer, but the Seller as well. Even though it is a great protection for the Buyer, it given the Seller a little bit more time and ample room to complete the necessary repairs. We all know construction in Florida can take longer than expected. This holdback allows for the transaction to close while also providing the parties protection and time.
For example, let’s say a real estate transaction includes a promise from the Seller to complete all roof repairs needed in order to complete improvements. However, the repairs might not be done before closing. The parties’ representatives can include an escrow holdback agreement either in the addendum or in a separate document, which states specific terms on the retention of certain funds. This will include the amount retained, the description of the repairs, and the length of time on the retention.
If the Seller was not able to complete some agreed upon repairs stated in the contract, some or all of the money would go back to the Buyer to be able to finish such repairs.
When can an escrow holdback be used?
Most common situations where an escrow holdback makes sense is in a transaction in which the Seller has promised to complete certain repairs during the negotiation of a contract or even after the inspection has been completed.
Another reason would be when the Seller or Seller’s tenants have not moved out of the property once the closing date occurs. In some purchase contracts, it is not unheard of for the Sellers to ask for extra time of occupancy. This can be done in several ways but one of the most secure ways to do this would be through an escrow holdback.
Either scenario minimizes the risk for both parties and allows the closing to be completed. This is a great way to negotiate certain terms and conditions that your client might want in a transaction.
Escrow holdbacks might be wordy and complicated to draft. We recommend discussing such terms with your attorney or title company. If you have any questions on such, you can reach our real estate attorneys at info@txescrow.com
