Fox Sports earlier reported that the sides were close to a deal.
The deal is reportedly for $14 million with an additional $500,000 in deferred money each year, according to multiple media reports. A source familiar with the negotiations told ESPN the sides still have some issues to work through before the agreement is complete.
Balfour, a 35-year-old Australia native, went 1-3 with a 2.59 ERA and 38 saves last season with the Oakland Athletics. Once he joins the Orioles, he will take over as closer for Jim Johnson, who was traded to Oakland for second baseman Jemile Weeks and minor league catcher David Freitas earlier this month.
Balfour's agreement with Baltimore leaves Fernando Rodney, Joaquin Benoit, Joel Hanrahan, Jesse Crain, Andrew Bailey, Chris Perez and Kevin Gregg as the most notable free-agent closers still looking for jobs.
Information from ESPN.com's Jim Bowden was used in this report.