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; 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.

The contract terms that decide the handling

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, and is an unwinding with deadlines provided for, or is the matter then renegotiated?

The most common mistake

The most common mistake is a down payment made outside the escrow arrangement. Such payments are understandable when things need to move quickly, and they are the risk that the escrow arrangement is meant to avoid. Anyone who pays the seller before signing the contract, or otherwise outside the escrow arrangement, has a claim but no security in a dispute.

How escrow fits into the transaction as a whole (priority ranking, bank financing, transfer tax, capital gains tax and Salzburg's land transfer law) is set out in Buying property in Salzburg: steps and costs.