The buyer is demanding a traditional indemnity escrow of fifteen percent of the purchase price, but we want them to use Representation and Warranty Insurance instead to maximize our walk-away cash. How do we convince a skeptical buyer to adopt RWI?

Question

Tyler Smith · Accepted Answer

A fifteen percent indemnity escrow is a massive chunk of change to leave sitting in a bank account for eighteen months, especially when you are trying to maximize your liquid proceeds at close. To convince a skeptical buyer to transition to Representation and Warranty Insurance, you must present it as a tool that reduces risk for both parties, not just a tax-saving strategy for you. Explain to the buyer that with an insurance policy, their recourse for any post-close representation breaches is backed by a highly rated, third-party insurance carrier rather than your personal bank account. This eliminates the awkwardness of trying to claw back funds from a founder who may still be helping them transition the business as a consultant or board member. Offer to split the cost of the underwriting fee and the premium, which is a drop in the bucket compared to the opportunity cost of having your capital locked up. To make the underwriting process run smoothly, show them that your company is run on a clean, systematized operating system like EOS. When underwriters see that your processes are fully documented, your leadership team is aligned, and your data is clean, they will issue the policy quickly and at a lower rate, allowing you to walk away from the closing table with ninety-nine percent of your cash.