Sunday, 13 January 2013

What is Escrow

“Escrow is defined as: An arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually-agreed conditions by the transacting parties.

what is escrow
escrow papers

In the age of globalization where trans-nation business transactions are the latest trends, the need for security of the money involved in the transactions becomes mandatory. Owing to the fast paced life today, an opportunity missed may keep success at bay for many years to come. So, it is necessary grab the big fish as it comes your way. But, absence of previous transactions records and no personal relation with the client or vendor the fear of being a victim to frauds is justified. Business trust is a process which develops after many satisfactory transactions between the parties involved. Thus, the need for a security for fair transaction between two unknown parties arises. This is exactly what Escrow does. It is like third-party managing the financial part of the transaction for the two parties involved from the commencement to the finalization of the transaction. Escrow secures the payment for the receptor and services or products to the giver.

Owing to the large size of transactions via Escrow, the fees charged by Escrows does not hurt any of the transacting parties. The charges vary from company to company. Some companies operate on low percentages also owing to rising competition among Escrows.
Transaction through Escrows is not only beneficial to the beneficiary but also to the payee. Payments through escrow act as forced saving accounts. Wherein the payee is expected to deposit money in pre-decided instalments, making it easier on his pocket rather than paying, lump sum amount at once. Escrows ensure timely payment to the beneficiaries on the transaction being completed.


Having understood about what is escrow, it is also essential to understand, the various types of escrow companies operating in the present day scenario.


The World Wide Web has indeed weaved people across the entire planet close to each other. Now business opportunities come from different countries and people can accept them without the fear of being cheated thanks to various Escrows operating online to ensure secure transactions between two unknown parties who have never interacted with each other.


The ATM and Vending machines are loaded with escrow oriented software. The machine refunds the deposited amount in case the depositor changes the input value or enters a faulty value. The machine retains the cash deposited by the depositor separately until the transaction is completed.


Escrows are most widely used in the field of real estate in the United States of America. Escrows ensure safety of the investor’s interests while they sell properties to buyers offering less amounts as down payments. Escrow company accounts are essential for many investors to involve in transactions with prospective buyers. The loan offering companies also prefer Escrows to negate the risks of losing their investments even in circumstances of hazards or insolvency on the part of the buyer.


Escrow companies have rendered people free from the hassle of worrying about their monthly bills, tax liabilities, and payment of EMIs etc. by enabling them to budget and chalk out a monthly amount which is easily deposited with escrows instead of troublesome hefty amounts altogether.
Escrow is used in various other sectors including law, intellectual property etc.
Even Escrows have draw backs and can lead to complications on the financial front for both the parties. After the understanding concept regarding

what is escrow

and the types of escrow agents one feels the need to explore the cons of Escrow services.
If the parties place their trust in escrows not registered in the list of licensed escrows, they might be cheated upon resulting in loss of materials and money.
Both the parties can do nothing but wait for the gruel and cruel time consuming process of returns via the insurance company if the Escrow company is declared insolvent.
Selection of Escrows also depends on the mentality of the people who wish to pay someone else for a service they can manage themselves. But, owing to the constant speeding up of things in current day scenario, paying to get rid of hassles which might slow you down is well worth the investment.
Understanding about What is escrow, its types, pros and cons of the concept enable the reader to make a choice as to if he wishes to use escrow for transactions in future or not.