An Escrow is a financial and legal document designed to protect Buyer and Sellers in a transaction. For a fee, an independent third party receives, holds and disburses the payments for the Buyer and disburses the payment once the predetermined contractual obligation in the transaction is fulfilled. With an escrow payment, the Seller will only receive the funds when the Buyer has received and accepted the products and/or services that are part of the transaction. However, the Seller knows they will receive payment because Escrow service provider is holding the funds on their behalf. Money, Securities, funds and other assets can all be held in escrow.
Escrow is a process used when two parties are in the process of completing a transaction, and there is uncertainty over whether one party or another will be able to fulfil their obligations. Contexts that use escrow include Internet transactions, banking, intellectual property, real estate, mergers and acquisitions, and law, and many more.
Consider a company that is selling goods internationally. That company requires assurance that it will receive payment when the goods reach their destination. The buyer, for their part, is prepared to pay for the goods only if they arrive in good condition. The buyer can place the funds in escrow with an agent with instructions to disburse them to the seller once the goods arrive in a suitable state. This way, both parties are safe, and the transaction can proceed. If any point there is a dispute between the parties in the transaction, the process moves along to dispute resolution. The outcome of the dispute resolution process will decide what happens to the payment in the escrow account.
Types of Escrow
How does escrow service work?