What is an Escrow Company?

Dee Saale
Dee Saale

An escrow company is a third party that is neutral to a transaction, particularly in real estate, between two or more parties. The escrow company typically holds documents, funds, and instructions regarding the sale of real estate until all the conditions of the transaction are met. The company may also ensure the details surrounding the sale are handled properly.

"Escrow" describes a situation where something is kept by a neutral third party.
"Escrow" describes a situation where something is kept by a neutral third party.

Generally, the escrow company is an impartial party in the sale of real estate. The company holds the money of the buyer or the title of the seller. It doesn't release the money or the title until all of the specific conditions of the sale are met. Once the conditions have been met, the company may prepare closing documents and transfer the property to the buyer or the money to the seller.

Using escrow is mandated in the United States during a real estate sale.
Using escrow is mandated in the United States during a real estate sale.

There are two main kinds of escrow companies: independent businesses and operations that are run by the realty company or a bank. With an independent company, the sole purpose is to close escrows. They are typically licensed and their staff usually has experience in all aspect of closing escrows. Sometimes banks or realty companies have escrow departments, but they may be less experienced in handling escrow.

In the United States, all the states mandate using escrow for the sale of real property. In some states, an attorney can be used, but in many states an escrow company must be used. The company does not need to be local, but a local company may be more knowledgeable with the local escrow laws. The fees the escrow company charges can be paid entirely by the buyer or the seller, but in most cases, they are divided equally. Escrow companies are also used across much of Europe and Asia.

When selecting an escrow company, it is important to find one that is legitimate, whether in the United States, Europe, or Asia. If a company is recommended though an online seller or buyer, it is best to scrutinize the suggested company before using it. In addition, when calling a company’s customer service phone number, a live agent should be available. Using a company that fails to list a phone number or address is not recommended.

Online escrow companies are becoming increasingly popular. It is important to verify any credentials or endorsements before using an online website for escrow services. The company's license should be registered with the local licensing agency for verification, and it may be a good idea to check the domain name to ensure the company did not originate a few months ago. Other red flags for fraudulent companies include poor website content, a request for payment to an individual rather than the company, and unbelievable deals.

Dee Saale
Dee Saale

Dee is a freelance writer based in Colorado. She has a B.A. in English Literature, as well as a law degree. Dee is especially interested in topics relating to medicine, legal issues, and home improvement, which are her specialty when contributing to wiseGEEK.

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Discussion Comments


@fify- Your situation is different and I understand that you've had a great experience with your escrow company.

It's not the same for everyone though. My sister and brother-in-law just purchased a house and they did not have such a great experience. The main reason was because the escrow company was selected by the real estate agent. The company was not impartial at all and basically got my sister and brother-in-law to pay most of the fees, which were also overpriced.

So, not every escrow company is trustworthy. It's best to do a lot of research and select the escrow company yourself when it comes to real estate.


@feruze-- I agree with you. I also think that escrow companies make it easier to communicate with the person you're doing business with. It can be difficult to work with someone you have met for the first time. But if you are dedicated to working with an escrow company, you know that you can trust them and that gives a lot of confidence.

I have been working with the same escrow company for years to purchase supplies from different vendors. Before I started working with them, I was trying to make contacts and purchase goods on my own but there was often a lot of miscommunication with the vendors and there were problems.

After I started working with my escrow company, they take care of everything for me. They bring me the details and papers to be signed. I pay them the money and they pay the vendor. If there is a problem, they deal with it, I don't. It's such a relief for me!


Even though there escrow companies set sometimes arbitrary fees, I think it's definitely worth hiring an escrow company, especially if there is going to be exchange of huge sums of money. The reason is because escrow companies are like the insurance for each party. They know that once the other parties agrees, they won't be able to back out. The parties also know that their money is being kept safely and will only be given to the other party when everything has been finalized.

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