What Sellers and Buyers Should Know About Home Utility Bills at Closing

Transferring ownership of a home is complex and part of that process is ensuring the seller is making good on paying off statements from utility companies. No buyer wants to be on the hook for another person’s unpaid bills – but it can happen.

Sellers, of course, should contact utilities to provide a forwarding address and move-out date. The companies can then forward the closing statements to the new address, with most also offering the option to deliver a letter near closing that shows the account is up to date. Don’t forget to actually close the accounts or sellers could still be responsible for utility costs after move-out.

There are times when a simple unpaid utility bill could hold up the sale. A lien can be attached to an owner’s title if he/she is in arrears, but only when the utility is run by a local government – for example, in the City of Mountlake Terrace, which provides sewer and water service to its residents. Governments that run a utility can hold up the transfer of title when a lien is attached, unlike a private utility – such as Puget Sound Energy – which must go through a collections agency to get the money.

There’s an easy solution to this type of lien. Escrow can be authorized to hold back a portion of the seller’s net proceeds to pay off the final bills. All that’s needed is a Northwest MLS form that includes the utility companies and their contact info, as well as signatures of all parties on the purchase and sale agreement. 

This MLS form permits escrow agents to request payoff statements from utility companies that can attach liens. Unfortunately, some sellers leave gaps on the form and escrow has no obligation to contact the unverified utility to check on a seller’s outstanding bills – a possible red flag that a good buyer’s broker will pursue with his real estate counterpart to sort through.

When the form is completed correctly, escrow holds back funds from the seller to ensure the bills are paid. Based on experience, Seattle Public Utilities can be a little slow in completing its billing for water consumption since an on-site meter reading is required, essentially forcing sellers to allow escrow to complete the final payment. The seller receives the unused balance of held escrow funds within about 3 weeks of consummating the deal.

Sellers typically have 5 days from mutual acceptance to provide the MLS/utility form to buyers. Either the listing agent or buyer’s brokers can insert the names and addresses of the utility companies identified by the seller. Both parties must sign the document for it to be official. To be clear, the payment of bills by escrow on a seller’s behalf only applies to government-run utility companies.

Escrow will list the utility payoffs on the net settlement statement but it will never close a seller’s utility account. The utility payoffs are almost always greater than the actual final bill, with overages refunded to the seller by the utility company after closing.

In a separate measure of protection, buyers should contact each utility company to establish an account unlinked to the previous owner – even if escrow or the seller have agreed to address final statements. As mentioned, some bills can hit new homeowners when private entities, such as Waste Management, are unable to track down the former owner. Don’t let a seller’s past-due bills sour your new-home experience, if possible. 

To stand out from their counterparts, some buyer brokers contact utility companies on behalf of their clients. They do this to both check on current homeowner statements, if possible, and determine average utility costs for the past 12 months to help future owners plan their budget. 

In a related topic, the seller must also disclose the source and condition of the household water supply, any water rights that go along with the property and the condition of the sprinkler system (if relevant). That’s part of the Seller Disclosure Statement, which only the seller can complete.

Working with a competent real estate professional will help smooth your transaction. Knowing key aspects of utility bills and the important role escrow can play in clearing those debts are all part of the trusted advisory role played by a knowledgeable broker.

Note: A paragraph regarding escrow’s role with utility payoffs was added to this article on Aug. 10, 2023.