Escrow: How It Works and Why It Matters

2 min read
May 12, 2023

Escrow How It Works and Why It Matters

If you're in the process of buying or selling a house or any other big-ticket item, you may have heard the term "escrow" thrown around. But what exactly is escrow and how does it work?

Escrow is a financial arrangement in which a third party holds onto and manages money, property or documents until a specific set of conditions are met. This ensures that both the buyer and seller in a transaction are protected and that everything goes smoothly.

For example: Let's say you're buying a house. You and the seller have agreed on the price and the terms of sale. But before you can complete the transaction, you need to make sure the property title is clear and that there are no outstanding liens or other issues. So, you deposit the money for the purchase into an escrow account in the meantime. Here, the money will be held until all the necessary documents have been signed and all conditions of the sale have been met. Once everything is in order, the money will be released from escrow and the property will be transferred to you, the buyer.

Both the buyer and seller can benefit from escrow. For the buyer, it ensures their money is protected until they receive the goods or services they're paying for. For the seller, it provides assurance that they'll receive payment for the item or property they're selling before it's transferred to the buyer, whether it be a house, car, boat, or other item.

Aside from protecting the interests of both parties, escrow can also provide a neutral third-party to help resolve any disputes that may arise during the transaction. If there's an issue with the property, for example, the escrow agent can help mediate a resolution that's fair to both the buyer and seller.

So, if you're involved in a large transaction, you may want to consider using an escrow service to help make sure everything goes smoothly and your interests are protected.