What is escrow?

Escrow is an arrangement where a neutral third party holds funds or assets until specified conditions are met. The escrow agent releases funds only when both parties fulfill their obligations. Escrow protects buyers and sellers in transactions where timing creates risk, ensuring neither party must trust the other to perform after receiving value.

Escrow in professional service transactions

M&A deals often use escrow to hold a portion of the purchase price for post-closing adjustments or indemnification claims. Consulting engagements sometimes escrow milestone payments released upon deliverable acceptance. Software implementations might escrow source code accessible if the vendor fails. Each use case addresses a specific trust gap.

Escrow account administration

Escrow agents charge administration fees, typically split between parties. The escrow agreement specifies conditions for release, dispute resolution, and interest treatment. Read agreements carefully. Conditions should be objectively verifiable. Vague release conditions create disputes. Define clearly what triggers fund release or return.