We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is an Escrow Contract?

Mary McMahon
By
Updated: May 17, 2024
Views: 14,609
Share

An escrow contract is a contract between two parties involved in a transaction that involves a third party who holds materials on behalf of the people involved in the transaction. In the contract, the parties agree to turn over documents, money, and other materials to the escrow agent. The escrow agent holds these materials until the terms set out in the contract are fulfilled, and then releases them as directed. This type of legal contract tends to be used for complex transactions where there are concerns about protecting the interests of both parties.

A common situation where an escrow contract is used is the process of buying a home. Most real estate transactions do not involve the buyer handing cash to the seller and the seller handing over the deed and the keys. Instead, a contract is created with certain terms and conditions that must be met, allowing the seller time to inspect the home. Part of the agreement can include an escrow contract. The escrow agent holds the buyer's deposit and paperwork related to the sale. If the home is sold, the deposit is applied to the sale price. If the deal is called off, part of the deposit may be forfeit to compensate the seller. The escrow agent is responsible for releasing the funds appropriately at the proper time.

Escrow contracts can also be used when people want to set up a transaction or transfer, but are not ready for it to go through, or want to control the transfer. For example, grandparents offering to pay for a child's college education might request an escrow contract. Under the terms of the contract, as long as the child is in school, funds will periodically be disbursed by the escrow agent to cover tuition, room, and board. The contract might also have other caveats, such as a requirement to take certain classes, or maintain a grade point average above a certain level.

There are standard escrow contracts available for many types of transactions that cover the fundamentals of the transaction. It is also possible to draw up a custom escrow contract for a specific situation. Both parties will typically retain attorneys who work together to craft a contract that is satisfactory for everyone.

In most regions, people who act as escrow agents must be licensed and they agree to adhere to ethical standards. Because they have control over and access to sensitive financial and other personal information, they are in positions of trust. If an escrow agent behaves fraudulently, assists with a scam, or otherwise violates professional ethics, there can be legal, as well as professional, penalties.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Editors' Picks

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
Share
https://www.wisegeek.net/what-is-an-escrow-contract.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.