What is Escrow?
Escrow, or to place in escrow, is a legal arrangement whereby an asset such as property, money, a deed, or a bond is put into the custody or held in trust by a third party for delivery to a grantee only after the fulfillment of some specified conditions. While this is the traditional definition, an escrow transaction can now also include technology assets such as software and intellectual property.
Escrow agreements are widely used in dealings in sectors like real estate, automobiles, business and personal property and also intangibles like domain names, websites and online auctions. Disbursal of cash settlements in class action suits and environmental damage reparations have also have been known to have been conducted by special purpose escrow funds.
Escrow services facilitate trade, since they protect the interests of both the buyer and the seller by acting as a neutral third party.
How are Sellers protected in a typical escrow transaction?
The seller is authorized to ship the goods only after Escrow verifies the receipt of the funds (payment). Escrow also confirms the buyer has received the goods.
How are Buyers protected in a typical escrow transaction?
Escrow tracks the shipped goods and verifies delivery. It also doesn't pay the seller until the buyer accepts the goods or the inspection period is over.
When is an Escrow used?
Escrows are ideal for exchanging high value items (i.e. typically $500 and above in value) that definitely deserve the security and the trust elements. Typically, escrows are used when the buyer and seller are unknown to each other, for purchases made on online auction sites, classified sites, B2B e-commerce sites, and internet merchants.
What are Escrow fees and who pays them?
Escrow fees are usually a fixed amount or a percentage value of the transaction or whichever is lower. Depending upon the agreement made, either the buyer or the seller or the buyer and seller together can share and pay the fees
How long does an Escrow process take?
Most escrow transactions typically take 5 to 14 days, depending on the inspection time, the method of shipment and method of payment selected.
Software Escrow
In a software escrow, the source code of the software is held by the escrow agents only to be released upon fulfillment of a condition or conditions in a contract. Software escrows usually require reasonable amount of documentation - software licensing agreements, software access codes, login keys, trade mark and copyright forms.
Tips when using Escrow
- Always ask your escrow agent for advice, when in doubt during the process of the transaction.
- Always remember to read through escrow agreement and understand the process flow clearly. It will help the transaction flow smoothly.
- Always opt for reputed and licensed escrow services. They may cost a bit more, but they generally are better equipped, have well trained and reliable employees and have systems in place.
- Beware of bogus escrow services. Fly by night operators exist in this business.
- Beware of fraudulent escrow sites.