Escrow handling in a property purchase: how it works

In a property purchase two risks meet: the buyer should not pay before ownership is secured, and the seller should not transfer before payment is made. Escrow handling solves this simultaneity problem.

How it works

The buyer does not transfer the purchase price to the seller, but into an escrow account. The trustee – usually a lawyer or notary – pays out only once defined conditions are met: the Rangordnung (priority ranking in the land register) or the basis for registration is in place, the creditors' releases of encumbrance have been received, and any required official approvals have been granted. Handling runs through the trust facilities of the Bar Associations and is secured by that.

What matters in the contract

Three points determine the quality of the handling: which conditions trigger payment, and are they objectively verifiable? Who bears which costs and duties, and when are they due? What happens if a condition is not met – is there an unwinding with deadlines, or is the matter renegotiated?

The most common mistake

Down payments made outside the escrow arrangement. They are understandable when things need to move quickly, and they are exactly the risk that the escrow arrangement is meant to avoid. Anyone who pays before signing the contract has, if things go wrong, a claim – but no security.