Glossary - Escrow Account
An escrow account is a legal arrangement in which a third party temporarily holds and regulates payment of the funds required for two parties involved in a given transaction. It helps make transactions more secure by keeping the payment in a secure escrow account which is only released when all of the terms of an agreement are met as overseen by the escrow company.
Also known as
- Trust Account
- Impound Account
Use cases examples
- Real Estate Purchase Agreement: The buyer shall deposit the down payment in an escrow account with XYZ Escrow Company as per the terms outlined in the agreement until closing.
- Software Development Agreement: The client will place the project funds in an escrow account, to be released to the developer upon successful completion of the stated milestones.
Considerations for investors
- Consider the escrow service's fees as part of the transaction cost.
- Evaluate the conditions under which the funds will be released from escrow to ensure they align with the investment’s risk and return expectations.
Considerations for founders
- Understand the terms and conditions attached to the escrow agreement, including fees, timeline, and release conditions.
- Choose a reputable escrow service provider to ensure the security of funds and compliance with legal requirements.
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