Escrow and Your Role as Home Seller

Here's why escrow takes weeks, and what you'll be called upon to do as the seller during this time.

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What happens during that mysterious time period known as "escrow," between signing the purchase contract and closing on a house? As the seller, you won't have to do much during this time except sit back and wait -- with some important exceptions that we'll discuss here.

What Is Escrow?

Escrow begins when both you and the buyer have signed the agreement governing the sale of your home and chosen an escrow or title agent to act as intermediary in making the deal happen. At that point, many people will spring into action:

  • The escrow agent, title agent, or lawyer will start ordering or preparing title reports, preparing the property deed, and more
  • The buyer's lender will begin in-depth review and processing of the loan and order a professional appraisal of your home
  • The buyer will (depending on what contingencies were in your contract) arrange for pest and general inspections and homeowners' insurance, plus work on meeting any other contingencies.

Your most important tasks will include making your home available when needed for inspections and appraisals, preparing various forms and statements (such as disclosures if you haven't already done so, and any other forms required locally, such as a smoke detector certificate), and meeting any other contingencies you agreed to in your contract, within the promised time frame (for example, getting copies of permits for work you did on your kitchen).

More generally, you'll need to be available and responsive when issues arise. For example, if the title search turns up a lien on your property placed by a contractor who claims you didn't pay the bill, you'll need to pay up or otherwise deal with this to clear the property's title. Or if the inspection finds that your house doesn't have enough smoke detectors, and providing these is the seller's obligation in your area, you'll have to buy and put in additional ones.

In any case, plan on staying in close touch with your real estate and escrow agents during this time, to make sure you stay on track. Below are more specific tips on issues that might arise during the escrow period.

Getting Past the Appraisal

Even if you've found a buyer willing to purchase your house for a price you're willing to sell for, it's not only the buyer who must agree. Except in the rare cases when a buyer is paying cash for your home, it's likely that the buyer's mortgage lender will require that the property be appraised -- that is, that a professional, selected by the lender, will come to the property and look around, then put a dollar figure on its value.

It used to be that appraisals were little more than formalities. But no longer, with lenders edgy after losing money to defaulting homeowners and getting stuck with properties worth less than the mortgages held against them. For tips on what you and the buyer will need to do if that happens, see Nolo's article Low Home Appraisal: What to Do.

Dealing With the Inspection Contingency

One of the biggest hurdles to clear is the inspection contingency. Hopefully your own advance inspection of the property has ruled out major problems that can't be fixed. But even if you did your own inspection, your house is practically guaranteed to have a few defects -- whether loose tiles, a missing cover plate on an electrical outlet, or a major crack in the foundation.

Your contract probably gives the buyer a certain number of days (such as three) within which to "approve" or "disapprove" of the report. The buyer now has an opportunity to say, "Forget it," and end the deal. More likely, however, the buyer will negotiate over the needed repairs. You can either agree to the buyer's requests for a reduced price, offer to pay for repairs outright, suggest minor changes to the buyer's request or insist on a second opinion from a contractor you trust, or refuse some requests and see how the buyer responds. Assuming the buyer truly wants your house, you should be able to reach a compromise. Be aware that if you playing hardball in these negotiations, you may  cause the deal to collapse.

Dealing With the Title Contingency

If any clouds on your house title are discovered, you'll need to deal with them quickly. This can sometimes mean coming up with some immediate cash. For example, if there's a lien on your house for unpaid child support, it's probably not going to be removed until you pay the child support or get a statement proving that it's no longer owed.

Preparing for the Final Walk-Through

Another often overlooked contingency that's probably in your contract is the final walk-through. As one of the last steps during the days or hours before the closing, the walk-through allows the buyer and buyer's agent to visit your house and make sure that you've left it in the agreed-upon physical condition. 

You'll need to have moved out of the house (unless otherwise agreed), made any negotiated repairs, left behind all fixtures and other agreed-upon property, moved out all of your own things, and left the place clean. If you fail to meet one of your obligations, the buyer can use this as an excuse to delay the closing, bring up new repair or price requests (possibly getting a last-minute credit in escrow to make sure you take care of matters), or even cancel the sale. Take careful note of the final walk-through date, and make plans to have your house empty and spotless before that time.

For more information on every phase of selling a home, from marketing to closing, see Selling Your House in a Tough Market, by Ilona Bray and Alayna Schroeder (Nolo). And if problems arise during this critical time period that need an attorney's help in sorting out, check out Nolo's Lawyer Directory

by: , J.D.

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