CALL US: (513) 560-8002

What Is An Escrow Holdback?

what is an escrow holdback?

What Is An Escrow Holdback?

During the final stages of buying or selling a home generally the homebuyer will be performing a final walkthough and the home sellers should be in the final stages of moving everything out of the house.  If certain repairs were not completed prior to closing or maybe the seller has been slow in moving out there are options that can be used to help protect the homebuyer and make sure the home seller completes the requirements called for by the contract.  One of the options a homebuyer may be able to use is called an escrow holdback.  This article looks at the escrow holdback and some of the situations where it may make sense to use it.

Escrow Holdback Explained

An escrow holdback is simply money held from a real estate transaction in an escrow account.  The escrow account used is usually owned by the title company since they are a neutral party to the transaction.  So for instance a home is being purchased by homebuyers for $200,000 dollars.  The home sellers owe $150,000 on the mortgage and are expecting to receive $40,000 directly back to them (after commissions and closing costs).  So in a transaction without any escrow holdback the title company will transfer $150,000 of the total sale amount to the mortgage company who holds the mortgage on the property being sold and then will provide the remaining amount from the sale to the sellers.

If the sellers were not able to complete some agreed upon repairs prior to closing, have not fully moved out of the house yet or caused some damage to the home while moving out for which they have agreed to repair, money can be held back from the seller’s portion of funds that they will receive at closing.  So rather than receiving the full $40,000 as mentioned above the sellers may only receive back $30,000 or $35,000 or another amount as agreed to by both the seller and the buyer.  Once the repairs or move out are complete the buyer will then be asked to agree to release the money to the sellers in writing.  If the stressed woman on move out dayhomebuyer does not agree to release the money and the seller feels that they have lived up to their end of the bargain the sellers would have to go to court in order to get the release of the money.

An escrow holdback could not be used in the situation where all of the money from the sale is being used to pay the mortgage, closing costs and commissions and no money is going to the sellers.  If the sellers need to bring cash to the closing table in order to pay off the mortgage or the sellers are in an approved short sale where they are selling the home for less than the amount of the mortgage an escrow holdback could not be used.  There must be enough extra money within the transaction that would be going to the sellers in order for an escrow holdback to be allowed.  A mortgage company will not allow for release of their mortgage lien if they are not getting paid in full.  If a short sale is happening then the mortgage company is unlikely to agree to having any money held in escrow as generally short sale homes are being sold as-is.

What Types Of Situations Should You Use An Escrow Holdback?

Probably one of the most common situations where an escrow holdback makes sense is where the home seller agreed to make a repair after inspection and the repair has not been completed before the date of closing.  One option is to delay closing but if both the buyer and the seller already have movers scheduled than this can be very difficult to do since often times scheduling movers must be done weeks in advance.  The alternative rather than delaying closing is to have some money held in escrow until the work is completed.  Having money held in escrow is not the end of the world for the seller. Once the work is completed and the homebuyer is happy with the work the homebuyer can sign a release to allow the money to be released.

Another situation where the escrow holdback may be helpful is where for whatever reason the home seller has not completely moved out yet.  If the agreement to purchase a house states that occupancy is given upon closing that means once all paperwork is signed ownership transfers over to the buyer and the buyer is then allowed to occupy the house.  In some purchase contracts it is not unheard of for sellers to ask for extra occupancy time.  For instance the sellers may want to stay in the home an extra 30 days after closing in order to give them time to move out or time to close on their new home.

Where the seller has asked for extra time to move out the buyer may be willing to allow them extra time but only under the provision that some money be retained in escrow holdback to either account for rent of the property while the seller is still living in the home after closing or to account for damage done to the home. Damage done by the seller could be intentional or not but the fact remains once closing has taken place the ownership of a house is now with the buyers.  The buyers would like to have a home in as good condition as they observed during the final walkthrough right before closing.  If there were damages due to the seller moving out or some other reason, money held in escrow could be used to cover some of the repairs. Absent some sort of escrow holdback post-closing occupancy is usually not recommended since if a seller refuses to move the only choice for the homebuyers will be to file for eviction which can be a rather lengthy process.  So in order to make sure the escrow holdback has some teeth to it when allowing post-closing occupancy. the amount held in escrow should be substantial in order to encourage the sellers to move out when required in order to get access to the remainder of funds from the sale of their home.

In the situation for where the seller has not moved out completely prior to closing and there is no agreement for post-closing occupancy the homebuyer can allow the seller extra time to move out and request an escrow holdback to account for any possible damage from the move.  This situation is a trickier though since often times the homebuyer has already scheduled their move and may be ready to move the day of or the day after closing. Depending on how much stuff the seller still has to move this can stop the buyer’s move so rather than using an escrow holdback the buyer and seller may want to agree to delay the closing, the buyer may ask for a reduction in the house’s price due to having money in suitcasereschedule movers or some other agreement must be worked out in order to keep the closing on track.

Bottom Line

An escrow holdback is commonly used for homebuyers to be protected when repairs of the home have not been completed in time for closing, when the sellers want to stay in the home for some time after closing.  The escrow holdback ensures there is some money that can be reached by the buyers in case the home seller does not complete repairs or overstays in the home. Agreements for escrow holdback need to be prepared ahead of time and be agreed to by both the sellers and the buyers.

Additional Resources

About the author: The above article “What Is An Escrow Holdback?” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you.  Contact me today!

I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.


#1 By Tom Tyman at 9/15/2018 10:09 PM

I've read somewhere that an escrow account also provides protection to sellers and lenders. I'd be interested to know though, in what scenarios does a seller need an escrow account. Any ideas?

#2 By Paul at 9/16/2018 6:16 AM


For some mortgage loans an escrow account may be required to collect payments for insurance and taxes. Depending on the lender and amount of the loan this type of escrow account could be mandatory but serves the seller well since they do not have to worry about paying that separately and getting hit with a large bill when it comes due.

Post a Comment

Blog Archives

Posts By Category

All Categories Cincinnati (10) Cincinnati Multifamily Market Overview (4) Commercial Real Estate (5) First Time Home Buying (2) Home Buyers (58) Home Ownership (53) Home Sellers (80) Investment Property (16) Knowledge (34) Luxury Home Buyers (6) Luxury Home Sellers (14) Luxury Real Estate Market Overview (34) Mortgage (3) New Construction (7) Podcasts (6) Real Estate Investing (8) Real Estate Market Statistics (49) Sellers & Buyers (51) Selling Your Home (1)

Posts By Month

Grab Our RSS Feed

Greater Cincinnati Communities

Northern Kentucky Communities

Map Search

Use our interactive map search system to find your dream home today!

What's My Home Worth

Find out about recent area sales and current neighborhood market trends.

Have Questions?

Our real estate experts can assist you with all of your real estate questions.