Financial Dictionary -> Investing -> Escrow

The term escrow refers to the process of using a secure middleman to transfer goods or money. Escrow can refer to an informal online service or a proper escrow agent who have trained and are recognized by their profession. In Canada and other regions escrow services may be conducted by an attorney. Generally escrow is a highly regulated industry on the professional or attorney level, although technically your neighbor could act as an informal escrow agent.

Although Escrow is growing as a security measure for buying and selling expensive goods, it is more commonly used in real estate. When a house is being sold, the seller transfers the property title to the secure middleman escrow agent. In turn the buyer gives their money or mortgage to the agent. This agent will then pass on the title and funds if all requirements are met. This essentially stops anybody from being scammed.

With the rise of online transactions there are now a lot of internet escrow services. Because there is a lot of fraud online, people turn to escrow to ensure they get their money or product securely. However fraud does still occur, and some escrow services themselves may be in on the scam.

Escrow is now frequently used for all types of product, not just real estate. Software, web-designs, source code, screenplays, and almost everything you can buy online will have probably been used in escrow at some point. The sale of intellectual properties can be a complicated situation, where a seller needs to limit how much a potential buyer can view of the works, without allowing infringement to take place. The Escrow agent may interpret what the buyer is looking for and in an unbiased, relay whether they think the product meets their requirements, without going in to specifics. For example a buyer may need a website that uses a database to take user info. Without giving away the code the agent will see if it performs said task.