An escrow agreement is an agreement about the deposit of funds to a neutral third party, who will release the funds to a seller once an event or sale has taken place. The word "escrow" derives from the Old French word "escroue," which means a scrap or roll of parchment.
Examples
Escrow agreements are used in many proceedings, such as real estate transactions, settlements in lawsuits, down payments in homeowners' associations and Internet sales.
Benefits
Escrow agreements facilitate transactions by reassuring both the seller that the buyer has the available funds to purchase a product and the buyer that he will not have to pay until he receives the product.
Process
An escrow agreement is written and signed by both parties and then delivered to the neutral third party, or escrow officer. Both parties usually select an escrow officer together. To ensure neutrality, laws prohibit the use of referral discounts, or lower charges for customers who heard of an escrow officer through previous customers.
