An Escrow account is one of the most reliable ways to make a transaction between two parties. But what exactly is an Escrow account, and when to use one?
Suppose you are going to buy a house from a broker or directly through the party. In such a case, your intuition would always stop you from writing a cheque to an unknown person. This is because there is a high risk of being conned or not getting the papers transferred before the date. You want to safely complete the transaction and get your new house in such a situation.
But how? Will you sign such a huge cheque and take the risk? Here is when an Escrow Account comes into the picture.
Definition: An Escrow Account is a third-party account that takes the buyer’s money and gives it to the seller once the terms and conditions of the contract are met, and the product is transferred.
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What an Escrow Account actually does?
- So, you have finalized a house from the broker/seller and want to buy it.
- You transfer the buying amount in the Escrow Account (Secure Account) that keeps your money safe and informs the seller, money has been received.
- The seller begins the procedure and updates Escrow about it.
- Once the transfer is complete, the seller reports it to the Escrow account.
- After which, the Escrow account confirms the transfer from the buyer. Now, the buyer has a particular time frame in which he/she can check the genuineness of the transfer.
- Once confirmed by the buyer, the Escrow account transfers the money to the seller; Making sure that both parties are satisfied.
Why use a Third-Party Account?
This question is quite obvious, why use a third-party or Escrow account for making contracts or transactions.
The answer to this is quite simple –
When you make a transaction using a third-party account, there is no risk of you being conned. Additionally, you get assurance that your money is safe and is yours till the seller completes the procedures.
The same scenario is with the seller when he/she uses such third-party accounts or Escrow accounts. Here, he/she is assured that once the transfer is complete or the buyer receives the product, they will get the money.
There are cases where buyers con the sellers and don’t transfer the money though they have bought the product in equal proportions.
Using such third-party accounts, the whole transaction is supervised, and it is only completed when both parties are satisfied.
When there were no digital payment systems, it was difficult to manage and create an Escrow account. It is now super easy to create an escrow account and manage funds directly from your mobile phone or a laptop. There are multiple legal Escrow Accounts such as Escrow, Tinexta, ZenGo, Dashlane, ContentPass, and a few more that manages your funds and supervises the transactions.
One of the most important things one should know about the Escrow account is no single Escrow account. There are different types of Escrow accounts, and they work differently. In this guide, we discussed What Escrow accounts are and how they work in general.
Frequently Asked Questions
An escrow account is a third-party account that supervises your transaction and is completed only when the terms and conditions are met.
You can easily set up an Escrow account by asking your bank if they provide one. Other online Escrow agents and a few insurance companies also provide Escrow accounts.
Typically money is stored from one week to 30 days. But usually, it depends on the terms and conditions of the contract that decides the time frame.
Escrow accounts are safe as it eliminates all the chances of losing money or fraud. Moreover, the Escrow accounts supervise the whole transaction and give assurance to both parties.