Updated: May 23, 2020
Often we have listing agents receiving solicitation for their sellers' escrow with a ZERO ESCROW FEE for seller, maybe different than norm buyer escrow fee. Is this for real? Is this how business has become? Is the escrow industry pricing itself down to being a commodity?
Yes it is a very attractive offer to the seller... ZERO ESCROW FEE... who doesn't want that. Buyer maybe gets a traditional or discounted escrow fee. So why does this model not become the norm? Why do traditional escrows and broker escrow with fees on both sides still exist today?
The answer is pretty simple. There is no free lunch. What is free means it is being subsidized elsewhere. Lets look at how escrow works in a traditional transaction. Buyer puts in a contract, seller accepts it and often elects to choose the escrow. Buyer seldom has a choice here. So what do escrow companies that needed desperate transaction count and sales do? Entice the seller to elect them as the escrow with ZERO ESCROW FEES. Buyer is given a price sheet later on in the escrow and pays it, transaction closes, everyone is happy.
HOLD ON HOLD ON..... what's the catch? What's the problem?
Problem 1: As a listing agent, you received the solicitation for free seller escrow fees. You passed that to the seller who elected A escrow. Seller is paying zero while buyer pays fees. We all know there is no free lunch. So in retrospect isn't the buyer paying the entire escrow fees for both buyer and seller? DOES THE BUYER KNOW THAT? WAS THE BUYER DISCLOSED THAT without buyer asking about seller fees? You as the listing agent had just participated in something that could possibly be misrepresenting escrow fee being "split equally or to each their own" in a transaction. Put it simply.... if you are the buyer and you discovered the seller chose an escrow that you have no say in, PAID zero fees and that buyer was not disclosed about it.... What would you as a buyer do? You have 3 possible targets for a claim now... the listing brokerage and agent, seller and the escrow firm offering the ZERO ESCROW FEES.
Problem 2: This is more of a macro scale. We know there are overheads and payroll to run an escrow firm. Now, if Escrow A sees Escrow B charging ZERO seller fees and matches it. C follows. D follows. What is going to happen is an unprofitable business model and many escrow firms will shut down, reducing competition and resulting in consumers having few fairly priced escrow services. Healthy price competition is great for the consumer, but predatory pricing (pricing below cost) to secure market share and drive out competition is not. Interested readers can look to anti trust, anti competition Sherman Act and the Federal Trade Commission Act.
Problem 3: Escrow services are detailed and meticulous tasks. The business model of ZERO SELLER ESCROW fees means huge volume processing. Same labor, huge volume x 3 to be profitable... what does that mean for the consumer file? Quality processing is compromised, close relationship with agents and clients are short changed for more file time. Errors and possibly more labor overheads will occur for the business model.
In a nutshell, what is free is not that good, what is good is not that free. There is fair pricing for any services. At STANFLES REALTY, we offer 100% commission brokerage services with a flat fee adding value to your agent business model. Our broker escrow also provides relationship quality services that is available to both buyer and sellers. We price market rates, not pricing that makes us look like a low end escrow haggling for business. Quality is not free, fair pricing with quality services is our GOLD STANDARD. Inquire at STANFLES REALTY - 100% Commission Broker.