If the mere thought of digging into sub-escrow terms makes your head spin faster than a top, don't worry — you're not alone! Trying to decipher complex real estate jargon isn't a walk in the park, whether you are new to the industry or have been around for a while. That's why we're here to help you understand the ins and outs of key sub-escrow terms, so you can make more informed decisions when it comes time to buy or sell a property.

This blog post is here to demystify all things related to sub-escrow fees, from understanding what they are and how they work to how it affects your transaction and, most importantly, your wallet.

So sit back (or put down the calculator) and get ready for an in-depth look at all your questions concerning sub-escrows!

Learning the Ropes: What Is an Escrow Fee? Escrow Fees Meaning Explained

Everyone knows what an escrow is, but understanding the fees associated with it can often seem more mysterious than the bottom of a treasure chest – until now! Escrow fees may not be the most exciting topic of conversation, but they're an essential part of any real estate transaction.

Escrow fees are simply the costs associated with setting up and managing a secure transaction between buyer and seller. An escrow fee is a fee paid to an escrow agent or escrow company for their services as part of the closing costs of a transaction. The escrow fees are typically part of your monthly mortgage payment.

Essentially, the escrow fee is like a safety net: it guarantees that both parties involved in the agreement can go about their business safely and confidently. So don't fret when you hear the term escrow fee – they usually don’t cave a huge dent in your wallet and are essential to ensure smooth purchase transactions. 

Just think of escrow fees as money well spent on peace of mind!

What Is a Sub-Escrow Fee, and What Does It Cover?

A sub-escrow fee is a charge to reimburse the title company for their respective services. Closing a real estate transaction requires precision and accuracy when it comes to money changing hands, making sub-escrow (also known as loan payoff) services an invaluable component of the process. 

The escrow holder delegates certain settlement duties to the title company charged with ensuring the delivery of a clear title at the closing of a transaction. Thus, title companies shoulder the responsibility for vital tasks such as coordinating with lenders over recording fees, verifying tax and mortgage payments are up to date, calculating payoffs on closing day, disbursing funds accordingly, and ensuring escrow companies receive confirmation that everything has been finalized correctly.

After everything has been successfully resolved, the remaining funds are forwarded back into the escrow account for usage and disbursement by the escrow holder during the closing of the transaction.

How Much Does a Sub-escrow Fee Cost?

Generally speaking, the sub-escrow fee is usually proportionate to the size and complexity of the transaction, the cost of providing the services, overhead costs, and the liability involved. As a result, the sub-escrow fees may vary between escrows and regions.

Sub-escrow fees usually cost between 1% and 2% of the home sale price, depending on the Title Company. The cost of the sub-escrow fee is typically around $95.00 – $125.00 and is often split evenly between the buyer and seller (unless the transaction is a short sale).

Key Sub-Escrow Terms Explained

Sub-escrow might sound like a foreign language, but we're all about breaking down the jargon barrier here, so let's take a closer look at what these important pieces of the puzzle actually mean. Let us lighten the load with a mini-dictionary for all crucial sub-escrow terms.

Don't get left in the dust – give our definitions an up-close look to know exactly where those funds are headed.

• Close of escrow: The close of escrow is a crucial stage in the home-buying process. This is the point where all the conditions of the escrow agreement have been met, and the buyers and sellers receive their funds and documents, completing the real estate transaction.
• Closing costs: Closing costs refer to an accumulation of fees, taxes, and other disbursements that must be paid before a transaction can be finalized. Closing costs get deposited into an escrow account administered by a neutral third party to ensure all funds brought to the table are appropriately handled.
• Sub-agent (Sub-escrow agent): An approved sub-agent that receives and disburses funds on behalf of the escrow holder or a lender, usually the title company’s payoff or sub-escrow department.
• Payoff/Sub-escrow department: A department of a title company that receives the loan proceeds and uses those funds to pay off any existing property liens, such as taxes and the existing mortgage loans.  Title payoff or sub-escrow departments charge a nominal fee for performing these duties – the sub-escrow fee.

FAQ

What Is Sub Escrow Fee in CA?

Escrow procedures actually differ between northern and southern California and even certain counties of the State. Since most customers are independent escrow companies and most title orders call for sub-escrow service, the payout or sub-escrow costs are unique to Southern California.

In California, the sub-escrow charge is filed with the California Department of Insurance, as with any other title charges. A sub-escrow fee in California is just another way of saying "administrative fee," and in the Golden State, it means you can expect the best bang for your buck when facilitating real estate transactions.

Are Escrow Fees Filed in California?

Yes. However, escrow fees are not fixed by law or determined by the state of California. Therefore, they can vary between escrow companies and from county to county. They’re also open to negotiation and can be split between the seller and the buyer.

How to Avoid Being Overcharged for a Sub-Escrow Fee?

Escrow fees can be negotiated, but it's best to do so before signing an escrow agreement. Additionally, if you look around, you could find comparable escrows with less expensive escrow fees. 

Keep in mind that escrow fees cover only a percentage of your closing costs. This means that you will be liable for additional closing charges that escrow holders are not in charge of, such as costs associated with the services of a title firm (sub-escrow fee), a mortgage broker, and/or obtaining a new loan from a lender. 

Just make sure that you know exactly what is included in the sub-escrow fee so that there aren't any unpleasant surprises down the line.

What Is Sub Escrow in Washington state?

Title insurance and escrow services may be "split" between two companies in jurisdictions like Washington. So, in Washington, a sub-escrow may be needed in case an attorney, outside escrow agent, or another title company’s payoff department is handling the closing of a real estate transaction. 

This doesn’t mean that a sub-escrow is required every time title and escrow are held by different businesses; rather, the borrower's lender may request one. Most of the time, you will know if a lender will require a sub-escrow when the closing date approaches.

Choose Your Escrow Company Wisely

Trying to keep track of what type of escrow fee you’re charged for and other sub-escrow details can be a daunting task. However, a better understanding of what sub-escrow frees are can make managing your real estate transactions much smoother and stress-free. And at the end of the day, if things still seem a bit too confusing, taking advantage of professional assistance never hurts!

If you are looking for a reputable real etstate company you can rely on, look no further than Lightspeed Escrow – a full-service escrow company founded by experts with over 20 years of real estate experience. Have more questions about sub-escrow fees? Feel free to contact us anytime to get the answers or escrow services you need at the speed of light.