BiggerPockets

You should have responded, "Okay, but I'll need the sellers to turn over the keys to the property a week before closing," and see if they thought that was reasonable... :D

Sometimes asset managers selling REOs will require EM at the time of verbal agreement, but for a private sale, I see no reason to provide EM before the contract is signed. How do you know the seller will even sign the contract and what instructions are you including with the escrow money if there is no contract?

The escrow company is real, but according to reviews they have a split personality. Some people think they are great, some people think they are slime.
We are thinking about withdrawing from the offer. If the sellers are going to behave like this all the time....

I've heard of this being done for REO properties, but not traditional sales.

Well it's normal in California for the seller to choose the escrow company. Not sure what you mean by "the seller specifically demanded". This is sounding more and more like a scam to me.

I don't think it's even legal for an escrow company (in California) to accept payment if the agreement hasn't been signed by both parties and delivered to them. For the last purchase we made, I drove to the escrow company to deliver the deposit check and they said they legally could not accept the check because they hadn't received the paperwork from the seller yet.

Be careful here, this doesn't smell right.

We have had to wire the EMD prior to contract signing by the bank. We did not like it, but dealing with an REO is largely doing stuff that you do not like.

For traditional sales, we would not be willing to do this.

This seems weird, especially in a market where there are a lot of buyers bidding on a lot of properties. This would mean -- essentially -- that if a seller were to receive 5 offers on a property, the 5 buyers would allow have to provide earnest money to the listing agent, and that listing agent would have to give all 5 earnest money deposits to the listing broker. The listing broker would need to hold 5 EM deposits despite a maximum of one actually being held, and a minimum of 4 having to be returned to the buyers.

Seems like a LOT of overhead for a listing broker...especially in a hot market where most properties are getting multiple offers...

I don't see why it couldn't wait until the contract is signed, since the title company isn't going to be doing any work on behalf of the seller before that point, so there is no risk to the escrow company or title company.

Great point, Chris...

There is no rule that says the buyer and the seller can't be represented by different companies, and that the buyer can't procure his own title search/insurance from his company while the seller is represented by his own attorney...

What exactly does that mean?

Do they demand you get your title search/insurance through their company? Do they demand you hold the EM in their escrow company? Do they demand that their attorney close the deal? All of the above?

In general, if the other party is making demands that you're not comfortable with (or you feel is putting you at risk), you should either demand changes or walk.

In this specific case, there is no reason why a seller should require you to use their escrow company (at least not without more explanation of why); without additional explanation or compromise, I'd be concerned about something something going on that you're not informed about.

This is a private sale in the state of California.
The property is residential income.