Escrow Account

Escrow protects both sides of a transaction. The buyer knows their money will not be released until the agreed conditions are met, and the seller knows the money is available and will be paid once they have fulfilled their side of the deal.

Escrow is common in property purchases. In the United States, a buyer's deposit is often held in escrow by a title company or attorney until the sale completes. Escrow is also used in online transactions, business acquisitions, where part of the purchase price may be held back for a period in case problems emerge, and freelance work platforms.

In the United States, mortgage lenders often also set up an escrow account for homeowners. Part of each monthly mortgage payment goes into this account, which the lender uses to pay property taxes and home insurance on the homeowner's behalf when they are due.

For example, in a business sale, 10% of the purchase price might be held in escrow for a year, to cover any claims if the seller's statements about the business turn out to be untrue. In the United Kingdom, a similar role in property purchases is played by the solicitors' client accounts.