Who Pays the Escrow Fees in a Holding Escrow Agreement?
Escrow fees in a holding escrow are typically split between buyer and seller, but either party can negotiate to cover the full cost depending on the terms of their private agreement.
This question comes up in every deal. Who pays for the neutral third party? The answer is simple: whoever agrees to pay. There is no law that says the buyer must pay or the seller must pay. In a holding escrow, the fee split is a negotiation point just like the price, the timeline, and the conditions. The only rule is that it has to be written down before the escrow opens.
At Secured Trust Escrow, we see every possible arrangement. Split 50/50 is the most common. But we also see buyers paying 100%, sellers paying 100%, and creative splits like 70/30 depending on who initiated the deal. Here is what is customary, what is negotiable, and how to document it properly.
Common Fee Split Arrangements by Transaction Type
Buyer Pays vs Seller Pays: When Each Makes Sense
Makes sense when the buyer is the party most concerned about fraud or non-delivery. The buyer wants the protection, so the buyer pays for it. Common in online purchases, equipment buys, and deals where the buyer is taking the bigger risk.
Makes sense when the seller is motivated to close and wants to signal good faith. Sometimes the seller offers to pay escrow fees as a concession to get the deal done. Common in distressed sales or when the seller is eager to move the asset quickly.
How to Document the Fee Split in the Escrow Instructions
The fee split must be in writing. Verbal agreements about who pays what are worthless if a dispute arises. The escrow instructions should include a specific clause stating the fee amount and who is responsible for paying it. Here is what that looks like in practice:
“The escrow fee of $1,200 shall be paid equally by Buyer and Seller, with each party contributing $600. The fee shall be deducted from the held funds at closing unless otherwise directed in writing by both parties.”
That is it. One sentence. But without it, the escrow company does not know who to bill. And if both parties refuse to pay, the escrow company may hold the funds until the fee dispute is resolved. Do not let a $1,000 fee argument kill a $100,000 deal. Write it down.
What Happens If the Deal Cancels
If the deal cancels, the escrow fee still needs to be paid. The escrow company performed work. They opened the account. They drafted instructions. They held funds. They are entitled to compensation for that work. The question is who pays if the deal never closes.
The best escrow instructions address this scenario. They specify that if the deal cancels, the fee is split the same way as if it had closed. Or they specify that the party who caused the cancellation pays the fee. Or they specify that the fee is deducted from the deposited funds before any refund is issued. Again, the key is to address it in writing before the problem happens.
Frequently Asked Questions
Can the escrow fee be deducted from the held funds?
Yes, and this is the most common method. The escrow company deducts the fee from the held funds at closing before releasing the balance to the seller. This avoids either party having to write a separate check. The instructions just need to authorize the deduction. Both parties should agree to this in the instructions so there is no dispute at closing.
What if the parties never agreed on who pays?
If the instructions are silent on fee payment, the escrow company may require both parties to pay 50/50 by default. Or they may hold the funds until the parties agree. This creates unnecessary delay. Always address fee payment in the initial instructions. It takes 30 seconds to add a sentence and it prevents hours of negotiation later.
Can a broker or agent pay the escrow fee?
Yes, if the broker agrees and the instructions reflect it. Some business brokers include escrow fees as part of their service package to make the transaction smoother for their clients. The broker would be named as the responsible party in the instructions. This is less common but perfectly valid if all parties agree.
Is the fee split different in real estate escrow?
In California real estate transactions, escrow fees are customarily split 50/50 between buyer and seller, though local customs vary. In holding escrows, there is no customary split because every deal is different. The parties negotiate it based on the specific transaction. Do not assume the real estate custom applies to your holding escrow.
Can I negotiate the fee split after escrow is already open?
Yes, but it requires a written amendment signed by all parties. The escrow company cannot change the fee responsibility based on a phone call or email. Both parties must formally agree to the new arrangement. If one party refuses, the original instructions govern. That is why it is better to negotiate the fee split before opening escrow.
Opening a Holding Escrow? Let’s Talk Fees
Secured Trust Escrow provides clear fee quotes and flexible payment arrangements. We will help you structure the fee split fairly and document it properly in your escrow instructions.
Licensed in California. Transparent fee structures. Flexible arrangements.
About the Author: This guide was prepared by the escrow officers at Secured Trust Escrow, a California DFPI-licensed escrow company with experience in fee structuring, business sales, and specialty holding escrows throughout Los Angeles and surrounding areas.
Legal and Regulatory Disclaimer: This article provides educational information about escrow services. It does not constitute legal, tax, or investment advice. Escrow transactions involve complex legal and financial consequences that vary by transaction type and individual circumstances. Parties should consult with qualified attorneys and tax professionals regarding their particular transactions. California regulations and market conditions change periodically. Last reviewed: May 2026.
