In Colorado, if there is work that needs to be done on a property and is not going to happen till after close, we have to set up an escrow account in order to use the money to pay for the work that needs to be done. Having this option can get a bit tricky and there’s a reason we try to avoid this like the plague.
The escrow account is normally held through the title company handling closing. The amount of escrow on the account must have 1.5x the amount of the work to be done. The way it works is as follows: When you set up your escrow account, a portion of the money is used to pay the vendor to begin work. Once the work is completed, the remaining balance of the escrow account is then reimbursed back to the seller.
Sounds pretty straight forward right? You put a release date on the escrow account. This is how long the account will remain active with a release date to close the account. If the work is not completed by the release date, the buyer is entitled to the full 1.5x amount of the account. Most sellers don’t want to put up 1.5x the amount of the work that needs to be done and they also do not want it sitting in an account they can’t access if life turns for the worst.
If there happens to be a dispute between the buyer, seller, or vendor doing the work then you will run into the issue of when does the work get completed? Will the seller lose their money? As you can see this is a pretty tricky situation to be in.
Our advice is this: Get the work done prior to closing. If you can extend closing to get it done ,great! Most buyers will not want to extend closing. They want the work done before they move in. Do whatever it takes to get the work done and avoid escrow accounts!