Escrow accounts for purchasing a property

We are buying a house in Germany (can I just add a 'hurrah!' there please?), and the Notar is offering to set up an escrow account.

I believe that an escrow account is somewhere we deposit the money for the full purchase price between the time we sign the contract with the seller at the Notar's, and the time when the purchase monies becomes due (i.e. when our legal entitlement to the land is entered in the Grundbuch). Or is the escrow account where we lodge a deposit if the seller asks for one (they haven't so far)?

I can imagine that an escrow account would protect the buyer, on the basis that the seller can't run off with our money before we are legally entitled to the property, or if they went bankrupt and their creditors had first-call on our cash. But is paying for an escrow account wasted additional cost in 99.9% of property purchases? Or is it pretty normal (mandatory even)?

it is indeed a standard procedure unless the full payment for the property comes from a (mortgage_)bank. The reason is that in Germany, property deals are ürocessed "Zug-um-Zug", i.e. you have to provide proof for the purchase price being available without chance to withdraw before the title of the land is changed. Therefore your money rests in the notary's account to be paid out only to the seller once the title for the land is registered in your name. this gives security for both, seller and buyer, because you as buyer can be sure that no money is paid out before there is no legal doubt anymore that you are the new owner (the process to this stage can however take several weeks or even months). On the other hand the seller knows that he'll get his money once he has legally given up is rights on the property. So you are fine with the way the notary proposes to do this.

Some additonal advice from professional side:
1. with the purchase of the house you "inherit" the house insurance which covers the house against fire, storm etc. It is important to check the coverage of this insurance and if it requires any updates or if you can get same/better coverage for less costs. With the purchase of the house you have a special cancellation right for the existing insurance which, of course, you should only use if and when a new insurance has already been confirmed (policy papers in your hand) by the new insurance provider.
2. you also ought to have a home owner's private liability insurance established to cover you against claims from third parties if from your house some damages are caused to other people's property or if injury is caused to other people (for instance by a falling tree branch or roof tile during or after a storm).
3. should you plan to rent your place out to tenants, be sure to have also a legal liability insurance in effect because German tenants love to sue their landlords for all kind of stupid reasons and an insurance for your legal costs comes in handy then.

Cheerio

An escrow account is not mandatory. I once bought a house and transfered the money from our giro account, plus a decent amount from a bank directly to the giro account of the seller.
We used express wire transfer. Everything was done within one hour.
It all depends if you trust the seller. From the money we saved we invited the sellers to a bottle of champaign.
A short remark:
There have been also cases of notaries running away with the money from an escrow account!

The Notar is asking for about 300 Euro to set up the escrow account, so that's a lot of champagne .

The sellers seem to be a property company - Poseidon Immobilien GmbH / ArchonGroup - so probably not succeptible to liquid bribes. I don't know what's going on there, because the Makler said the previous owners were a couple who divorced. Maybe they argued about who should keep up the mortgage payments, neither did, and the financing company repossessed the house???

if you do not know much about the company "Poseidon Immobilien" and if there were pre-owners with divorce-problems where there could still be some legal claims out there from any of the spouses (they can actually file for an arrest of your money until the dispute between them is settled so that your money is frozen in and you still don't have the title to land and building yet!) ---------- maybe the escro account is not such a bad idea when you review these potentially fishy circumstances? Just a thought...

Cheerio