What is an Escrow?

Escrow: definition, amount, and payment

[ESCROW] In the jargon of real estate transactions, the term escrow often comes up. Here’s everything you need to know about escrow.

What is an escrow?

The escrow means, within the framework of the signature of a sales agreement, the sum paid by the future purchaser of a property for the real estate transaction. Delivered to the notary or the real estate agent, the sequestration confirms the will of the purchaser to buy the property. It acts as a “formal reservation” of the property. However, it is essential to notify its presence in the contract.

What is an Escrow?

Is escrow mandatory?

The payment of the sequestration is not obligatory, except in certain real estate transactions. According to the Construction and Housing Code, it is required for the following two scenarios:

  • A so-called “long-term” promise to sell: if it exceeds 18 months, the future buyer must then pay a minimum deposit of 5% of the total amount of the transaction;
  • The sale in the state of future completion or VEFA: a payment of 5% is also required on the basis of the estimated value of the property if the provision does not exceed one year. If the completion time is estimated at two years, 2% should be paid on the basis of this same value.

How does the escrow work?

Optional, the sequestration consists of paying a sum, a deposit, as a security deposit. This sum is then blocked until the moment of the signature of the final sale of the property. Except in the case of restitution of the sequestration to the purchaser (see below), the sequestration is then deducted from the total amount of the sale.

When do you have to pay the escrow?

The escrow is most often paid at the time of signing the sales agreement. Sometimes, however, the two parties agree that the payment of the sequestration takes place at a later date, fixed by the two parties. However, this situation remains rather exceptional.

What is the amount of the escrow?

The amount of the sequestration is freely fixed and decided by the two parties. The non-compulsory nature of the sequestration effectively limits any regulation in this area. In practice, however, it is customary for the amount of the sequestration to vary between 5 and 10% of the total sale price of the property.

The money paid is then blocked in an escrow account. Depending on the interlocutors who supervise the sale, it can be managed by a real estate agent, a notary, or by the owner himself. The real estate agent has an account dedicated to this type of payment, while the notary places the money in an account with the Caisse des Dépôts et Consignations. It is therefore recommended to go through a professional.

What is an Escrow?

How to recover an escrow?

A purchaser who pays an escrow has the possibility of recovering the amount paid:

  • If he withdraws within the legal period;
  • If he asserts a suspensive clause(refusal of his mortgage by the bank for example).

In both cases, the purchaser then recovers the entire sequestration. Apart from these two situations, the buyer loses the receivership, which is returned to the seller as compensation.

Who should pay the fees associated with the escrow?

Unless otherwise stated, the costs of escrow are the responsibility of the purchaser. It is important to specify this information when signing the sales agreement. When borne by the purchaser, escrow fees are most often included in all the notary fees he must pay for the real estate transaction.

How to avoid paying the escrow?

Although very common, escrow is not mandatory. To avoid paying the escrow, it is, therefore, possible to negotiate with the seller and agree to draft a sales agreement without escrow. The process is more or less delicate, depending on the trust granted by the seller to the buyer.

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