Definition of Escrow

What does the term "escrow" mean? What is the definition of the term "escrow"?

"Escrow" refers to when you give something of value to a third party for them to hold until a certain condition has been met. Once the condition has been met, the third party (escrow) will transfer the item of value to the other party in the transaction.

Definition and Illustration of the term Escrow - Financial Dictionary - Real EstateFor instance - let's say that you are planning on purchasing a web site for $1 million.

Now, you aren't just going to give the seller a check for $1 million and hope that they transfer the web site to you. Instead, you are going to use an escrow company, as they will protect both you (the purchaser) and the seller.

Here is how it works.

You send the escrow company $1 million. They inform the seller that they are in possession of the funds. The seller then transfers the web site to you. Once the transfer has been completed, the escrow company will then release the $1 million (minus a fee, of course) to the seller.

By utilizing a reputable third party as an escrow company, both you and the seller can feel confident that the transaction will go off without any problems. If the seller decides to back out of the deal, the escrow company will simply return your $1 million.

Escrow companies are used frequently in many types of different transactions, including business deals and real estate transactions.

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