How to Sell a Home with the Escrow Holdback Program
As a listing agent what happens when you have a great foreclosure listing but the AC condenser goes missing? The seller doesn’t want to replace it because it will probably go missing again and they have already put enough money into the house being that it’s a foreclosure. The buyer doesn’t want to replace it until they own the home so…what are your options? An Escrow Holdback for that repair, either buyer or seller funded, is the solution.
What about that great house you just found but it has foundation issues?? The seller doesn’t want to spend the money to repair. The buyer does not have the cash to fix and will not fix until they own the home. The solution again can be the Escrow Holdback program, which again can be either buyer or seller funded.
As a final example take that listing with the updated kitchen but the disgruntled previous owners tore out the cabinets. Aside from this no other repairs are mandatory. Well once more the Escrow Holdback will save the sale and make everyone happy in the end.
Now let’s talk about the structure of an Escrow Holdback. First of all it will work with both Conventional and FHA loans. Basically it’s a feature, if you will, of any loan type which allows for a very minor repair after closing. Generally speaking the repair total needs to be under $5,000.00 and the time to complete needs to be in the neighborhood of 5 business days. The most important part to remember is that the repair item must be noted by the appraiser and the appraiser must state this item needs repair because it doesn’t currently meet minimum property standards. Finally the appraiser will conduct the final inspection to ensure the item was repaired, replaced, etc in a satisfactory manner.
The next step is that the buyer will obtain a bid from a contractor they wish to use. As a side note this is great for the buyer because they will ensure the work is done by someone they trust. Once we review and approve the bid that repair amount is added to the loan and we move forward with the normal loan process. At closing all funds are disbursed and we set up an escrow for the repair work. The contractor will request a draw from us as soon as the work is finished and after the final inspection we close out the escrow.
What about the sales contract? Well you simply need to state in the Special Provision section that this loan is subject to an Escrow Holdback and you need to let us know who will pay – either the buyer or the seller.
While this isn’t a substitute to some of the other Rehab Loan Programs we have previously discussed, this is a great and very cost effective way to repair single items which otherwise would prevent the loan from continuing forward. As you can see in the end the buyer gets the home, the seller isn’t out any money and we supervise the repair post closing.