Creative Escrow Account Strategy or Construction Holdback?

[Matthew Shay]

I have a vacant lot for sale and the next-door neighbor is interested in buying only they are interested to offer less because of fill dirt and drainage issues. Based on my research the total costs to solve this issue is $30,000 maximum but possibly less. I had a talk with a reputable local builder who told me that it's possible that the additional costs to build this lot might be significantly lower if the HOA deals with these issues. It is questionable whether the property owner is truly responsible for these costs because there may be some negligence by the HOA for creating this problem

I would like to propose to the neighbor to enter into a contract for the sale of the property with the following conditions: $85,000 at closing but only $55,000 of this amount will be released to the seller immediately at closing. The remaining $30,000 will sit in an escrow account by a 3rd party and only upon the final receipts of the costs for the fill dirt and drainage issues will the remainder of the funds be released to the buyer. Anything remaining of the $30,000 will be credited to the seller

In addition, the buyer agrees that the seller has 90 days to rectify the issues with the HOA and any other responsible parties. In the event that the responsible parties pay for these issues then the $30k in the escrow account will be credited to the seller

A couple of things I would like to find out. Is this considered a type of construction holdback and if not what name is there for this kind of deal structure? I have seen terms such as Working Capital Hold Back, Earnout and Reverse Earnout which is used in Mergers & Acquisitions and wondering if they can be applied in a land sale. Finally, this will have to be approved according to state laws in the great state of South Carolina