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What is Escrow Account and how it works?

Escrow can be defined as a neutral third party during a major financial transaction, usually between two independent parties, who both hold valuable assets. The asset is normally held by one party in escrow account.


The roles of the two main parties are decided by an "assignment of trust." This assignment of trust typically is made in a written contract that is signed by both parties.


Why To Use Escrow In Transactions?


Escrow serves to protect the interests of both the buyer and seller in digital or physical transactions.


The middleman protects seller's investment by holding funds from buyer until a specific time period called a " contract closing." The buyer is also protected by escrow, once the buyer gets the assets and same is confirmed then middle man release the funds else funds will be refunded.


How Does Escrow Work?


In general terms, a third party, usually a lawyer, an attorney and a broker, who acts as an agent or middleman on behalf of the buyer and the seller, escrows money in exchange for fees paid by the parties involved in the deal. These fees are referred to as earnest money.


Escrow in this form may be a standard form of transaction, where the third party is a party that has agreed to act as an agent, or may be limited to limited forms of transactions such as deeds of trust or mortgages.


Who Holds the Escrow Funds?


In most states, escrow must be held by a bank or by a qualified financial institution.


A bank usually holds the funds until the designated contract closing date, which is usually 3-7 days after the last date for performing the transfer. If there is a deficiency in the purchase price, the funds are held until the total purchase price is achieved or until the closing is reached for the transaction.


What Is an Escrow Account?


The funds held in an escrow account are held by the buyer and transferred to the seller upon the completion of the transaction.


Some states allow the buyer to hold the funds in an account separate from and in addition to the seller's account. It is important to note that, if an Escrow Account is opened in your name, you are the only party authorized to access the funds. Therefore, it is important to ensure that any transactions you initiate in your name are being processed through a good broker.


Why use Escrow Accounts In Buying and Selling digital goods?


In most cases, escrow can be an effective way to make any transaction of accounts or digital assets without unnecessary delays and online frauds on either the buyer or seller side.


It also provides time for the parties to evaluate their options and come to a mutually beneficial transaction.


If an agreement is not reached, then the failure to complete escrow normally does not have a direct negative impact on the sale of the asset.