An escrow agreement involves a buyer, seller, and third party to ensure a transaction goes as planned. The third party, or escrow agent, holds funds in a special account until the terms of the contract are met, making transactions more risk-free. Escrow agreements are commonly used in real estate sales but can be useful in other situations as well.
An escrow agreement is a type of legal agreement that involves three different parties and works to ensure that a transaction goes as planned. For some types of transactions, there are only buyers and sellers. The buyer and seller must be dependent on each other, in such a case, for the transaction to go smoothly. Unfortunately, there is always the possibility that either party will not live up to their part of the bargain. Escrow agreements help make transactions more risk-free by putting a third party in charge of releasing payment once the terms of the contract are met.
Every escrow arrangement has a seller, a buyer, and a third party. In legal terms, the buyer is often referred to as the depositor, while the seller is called the payee. The third party in an escrow agreement is called an escrow agent.
Escrow agreements are often used when a buyer must put down a deposit for something they plan to buy. For example, if a person wants to buy a house, the terms of the sale may require the buyer to pay a deposit, which is held in escrow. In such a case, the escrow agent may be the seller’s attorney. However, the lawyer does not give the money to the seller. Instead, he protects the deposit until the sale of the residence is complete.
Generally, the parties to an escrow agreement agree that the escrow money will be held in a special account, often referred to as an escrow account. Both parties have the right to know where the money is being held on deposit. However, with the exception of the escrow agent, neither party has access to the account or the ability to go to a financial institution and withdraw it. When the transaction is complete, the escrow agent transfers the money to the seller. If the buyer and seller decide to cancel the agreement, the escrow agent returns the money to the buyer, unless the agreement states otherwise.
Although escrow agreements are frequently used in sales involving real estate, they can be useful in many other types of situations as well. For example, an escrow agreement may be drawn up as part of the sale of a group of websites. In such a case, the parties may sign an escrow agreement, stating that the seller will begin transferring the site files to the buyer once the buyer has provided an escrow. After the buyer has reviewed the files and determined that they are complete, the escrow agent then transfers the funds to the seller.
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