Homebuyers Will Benefit From Escrow in Real Estate

Kishan Thakkar K

If you are connected to the real estate sector or planning to buy or invest, you might have come across the word ‘escrow’ from a developer or builder. We’ll understand the basics of escrow first, and the benefits of escrow in real estate for home buyers.

Without any further delays let’s first understand the basics of escrow…

Basic of the Escrow

“Escrow is a third party essentially a bank or a recognized lender, that hold paperwork and money while the process of completing a transaction.”

An escrow is a legal arrangement in which a third party controls the transaction and disbursement dependent on conditions agreed by both parties. The real estate builders have to transfer 70% of the money received from the customer to an escrow account maintained with a scheduled commercial bank. This reduces the risk of insolvency. This can be considered as one of the key changes from the RERA.

“One of the key changes implemented by RERA is the implementation of escrow.”

Escrow is mandatory in most home purchases. The escrow agents collect the “earnest money”, which generally varies from 1% to 3%. After receiving the amount on an escrow account, the seller takes the property off the market. This provision prevents the real estate developer to use the fund for other construction projects or development and business expansion.

Need for the Escrow

One of the biggest problems that buyers face is the project delay and the cause of the delay is generally using the funds for business expansions or development of other projects by the real estate developer. Although with the strict regulations of the RERA and government initiatives, the probability of that has reduced greatly!

The real estate developer can withdraw the funds solely for purpose of construction of the project to which it belongs. The developer can only withdraw funds from this account in proportion to the fulfillment of predetermined contractual agreements. An engineer, an architect, and a chartered account can certify the request for the withdrawal of the funds.

In addition, RERA has made it mandatory to get the escrow account audited, within six months after the end of every fiscal year, by a certified chartered accountant.

Also read: What is Financial Year, Fiscal Year & Assessment Year in India?

© Times of India

Reason for Escrow?

The buyer needs to confirm the quality of work and inspect the construction stages while making the payment and on another side, the seller doesn’t want to continue the construction of the projects without assurance.

Typically, in the financial transaction, the seller’s concern is regarding the assurance for receiving the payment on time, whereas the buyer is concerned about their investment and timely completion of the project as per the discussed contract. Funds can, therefore, be partially released as predetermined agreements are fulfilled.

An escrow gives the assurance to the buyers for the timely payments for the property taxes and homeowners insurance.

In Summary

The arrival of the escrow will boost the credibility of the real estate sector in India. While all the latest news and trends related to the real estate market will be available on our LinkedIn Platform, you can follow our Page, by clicking here.

Pandemic has affected real estate sector greatly, while government initiatives like escrow, low-interest rate, etc. will become an aiding factor for the real estate sector and make the sound base for the future of the sector.

Staying informed and discussing with experienced & experts while making a decision is an ideal way of making a great deal. All you have to do is contact RoodLand, which provides the best real estate services. For any queries and suggestions, contact us at info@roodland.com and discuss all of your options with us!

Roodland is a business solution and advisory organization for the Real Estate sector. It is founded by young professionals with experience in management, marketing, finance, and digital technologies. With their innovative marketing concepts and out-of-the-box methods, RoodLand has successfully delivered amazing results across the region.

Consider sharing with your friends, family, and relatives, if you have found it useful.

Thank you for reading! 🙂


Subscribe To Our Newsletters

We don’t spam! Read our privacy policy for more info.


To be updated with all the latest blogs, news and special announcements.