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What is escrow?

Escrow is a financial agreement whereby a third party escrow

agency or officer acts as an intermediary between two

parties who take part in a transaction. The escrow agency

takes control of the money and tangible or intangible

assetsthat are to be exchanged until the conditions of the

transaction’s contract are met.


Escrow is used when the buyer or seller (or both) needs extra

reassurance that both parties will live up to their obligations

under the transaction’s contract.


What is an escrow account?

An escrow account is set up by an escrow agency in which

both the seller and buyer (or their solicitors) are joint account

holders.


Escrow accounts are often used to hold money, securities,

funds or any other kind of asset, providing protection for all

parties. An escrow agency will collect fees from both parties,

which are usually expressed as a percentage of the

transaction’s value.


Examples of escrow

There are numerous instances where an escrow account may

be used in both your professional and personal life. Here are

three of the most common.


Mortgages and real estate

Escrow accounts are commonly used when buying and selling

property. When a buyer puts down a deposit, the funds are

placed in escrow while they carry out their due diligence

checks on a home, investment property or commercial

property. If, for instance, the homebuyer’s report reveals

something that could compromise the sale, the buyer knows

that their deposit is protected.


Stock market

When you buy and sell stocks, these are also often issued in

escrow. When stocks are issued to employees as a bonus,

they must usually wait for an escrow period to pass before

they have the option to sell their stocks.


Online sales

Online selling connects businesses to a huge global market

instantly. But it can also represent a degree of risk when

making high-value sales. Particularly when you’re selling to

someone you know nothing about.


Online escrow platforms act as an intermediary, withholding

payment until the product has been received. Once delivery

has been verified, the escrow officer will release payment to

the seller.

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