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An eScrow account and its implications

Unless you have done a course in banking and its legal implications or have been a long standing real estate agent, it's highly improbable that you would have heard of the term ESCROW. Perhaps heard it in the passing by or read it in the newspaper. It is a great and important tool in business circles and stock exchanges. From small business houses to global conglomerates, an escrow account has become the standard in various transactions and business deals.

What it means?

In the simplest of terms, an escrow account means a 3rd party account. It's an account known both to the giver and taker and trusted on both sides. For example let's take two imaginary parties A and B. A and B are involved in a business transaction but don't yet sufficiently trust each other. There is a 3rd party C who is known to both A and B and trusted by both. Thus, C acts as an intermediary for both A and B.

How does it work?

Let's continue with our example A and B. Now, let's assume A has an item that needs to be purchased by B. But, the item has yet to undergo certain quality checks. B deposits the amount required to purchase the required item in an escrow account held by a 3rd party C. Once the item passes the quality checks, B gets the item and A gets the amount. It's that simple!

How does it help?

It is of help to all the parties involved in the transaction. Continuing with our hypothetical parties above let's see what each of the parties stand to gain. A is at a gain, because the amount has already been deposited by B. Hence, he knows that B is serious enough in buying the product and A need not search for another customer. B is at a gain because he has almost purchased a worthwhile product from A. But in case the product fails to pass the quality checks, he will get his money back from C, thus saving him from unnecessary hassles and other legal complications.

C stands to gain, as he is known and trusted by both the parties. Since it is his account that is being used in the transaction, he gets a certain commission of the transacted amount from both A and B.

Its implications

We have explained about an escrow account with an imaginary product. But, this is being put too much use across the world in many other ways. From property purchases to corporate take over's, Escrow accounts have become the standard byword in any major dealings thus in turn avoiding various legal and non-legal complications and implications! And you can be assured that you are not getting yourself involved in something murky or illegal. It's a very common practice being employed world over. So, if you are hesitant about selling or buying something from an unknown person, find a common ground and go for the Escrow account way of doing things.