Escrow generally refers to money held by a third -party on behalf of transacting parties.
An escrow is a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction. It is best known in the context of real estate (specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage. The escrow agent has the duty to properly account for the escrow funds and ensure that usage of funds is explicitly for the purpose intended.
Escrow companies are also commonly used in the transfer of high value personal and business property, like websites and businesses, and in the completion of person-to-person remote auctions (such as eBay), although the advent of new low-cost online escrow services has meant that even low-cost transactions are now starting to benefit from the use of escrow. Traditional escrow works by placing money in the control of an independent and licensed third party in order to protect both buyer and seller in a transaction.
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