How to arrange a Repair Escrow?

[Marc Macialek]

I'm under contract on a home (primary residence) that needs major work to building systems and updating. Part of my realtor's recommendation was to offer asking price plus $20k to be given back to us for the work. The sellers have agreed, and the appraisal came back high enough to support it.

I have acceptable bids for the work I will not be self performing. The $20k will cover the work on the major systems plus a little left over to help with the updating costs.

My realtor says the money needs to be paid to the contractors at closing. Being a construction professional, I NEVER prepay for construction work. I'll make progress payments or pay at completion, but NEVER, EVER prepay the full amount upfront.

I'm looking for another option to keep the money in my control. I can understand the bank not allowing me to get a lump sum (but they trust contractors?).

I've done some reading on repair escrows. It sounds like the title company holds the money and issues the payments as the work is completed. I'd be fine with that. Once the contractors are paid for their work, can the account be set up to release the remaining funds to me, or reimburse me for expenses if I provide receipts?

Does anyone have experience on this? Can I get some tips?