What is Escrow and Why is It Necessary?

Kishan Thakkar K

You might have heard the word ‘escrow’ from developer or builder while buying a home. Escrow is basically a third party essentially a bank or a recognized lender, that hold paper work and money while process of completing a transaction.

One of the problems that buyers face are the project delay and the cause of the delay is generally using the funds into business expansions or development of other projects by the real estate developer. 

It is essential to learn & understand how ‘escrow’ works. Whether you’re dealing with the transactions related to real estate or online selling, it is worth learning about what the escrow means.

What is Escrow?

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.

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.

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 fulfilment of predetermined contractual agreements. An engineer, an architect, and a chartered account can certify the request for the withdrawal of the funds.

Understanding Escrow

Escrow ensures transparency in the translation of the money, assets, or paperwork to minimize the risk involved. The buyers can pay in proportion to the completion stage as per the predetermined contracts discussed. Although the transactions involved are much more complicated.

The escrow acts as a neutral third party for both buyers and sellers. Here the buyer can monitor various stage of the construction and sellers gets the assurance of the timely translation of money. The escrow provider safeguards the assets of the buyers and the sellers.

The escrow is generally used in banking, selling goods, real estate, mergers and acquisitions, and law, etc. But it is frequently used in big transactions involved in real estate. The real estate agent can provide an escrow company or a service provider who can be trusted in this big transaction.

Why 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.

On a Final Note

The initiative from RERA, a regulatory intervention, such as escrow will definitely go a long way in creating a positive and structurally sound ecosystem in the real estate sector. Buyers and sellers must be aware of this term. The buyers must do their due diligence, and search for the details for the escrow service provider. 

You could also ask for a help or suggestions from the Roodland. Reach out to a trustworthy real estate agency is a great way to get experts views and advice. Don’t feel hesitant, approach the best around you! All you need to do is reach Roodland as they have the best real estate services.

Roodland understands our need, expectations, and works with you to achieve them. Roodland ensures to be with you in every dream of yours and guides you with the best!


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.