HOW DOES ESCROW WORK?
Many things which have become huge businesses these days, if perceived from a different angle are events that used to take place around us in our childhood days. How many times has it happened with you that, father left sweets with the mother for you and instructing her to give them to you after you have completed your homework? We have grown up watching movies. Many movies comprised of scenes where a sick father on death bed announces via his Legal Will that he shall give his belongings to his beloved son only if he married a particular girl. This is exactly what happens in an Escrow transaction wherein the buyer promises to pay the seller based on some stipulations governed and ensured by a third party.
In order to understand the process of ‘how does Escrow work?’ the following details might be helpful.
SOURCE OF TRUST
The concept of Escrow works around the concept of 3rd party mediation for the transactions between the buyer and the seller. The 3rd party ensures smooth flow of events for both the parties and is the source of common trust for the transacting parties. It is like paying a person to be a witness of a transaction with a stranger. A concept of management, taught by the old people when they asked a responsible person to accompany us when we were to venture into a new activity. The Escrow agencies succeed depending on the goodwill they have earned by ensuring plenty of successful transactions. The greater the goodwill of the firm, the more is it likely to draw business by earning trust of the transacting parties. After all, ‘Trust is the name of the game.’
POOL OF RESOURCES
A token is an essential part of every bargain. Even the most selfless feeling of love demands a token to start off the proceedings. Similarly Escrows encourage the payer for initial advance payment to be created as a milestone which is released to the service or material provider after the completion of the transaction. Advance amounts should be a minimum of 20% of the total valuation of the deal. The advances rest with the Escrow and add to their pool of funds until the transactions are complete. In case of annual payments the money deposited by the payer in Escrow accounts is used by the agent for the annual tenure.
Once, the payee rests his trust with the escrow and completes the task he is entitled to receive the payment on the stipulated time. On time delivery of payment, post approval by the payer is the responsibility of the Escrow. In case the payer does not respond to the request for a substantial period of time, the payment is released to the payee after 30 days. An escrow that ensures delivery of payment and services on time is considered to be a successful one.
Some people assign the task of handling their bill payments, tax liabilities and loan repayment to Escrows. Escrows agents provide this service to their clients based on the monthly budget of the clients. A slip-up on the part of the Escrows, can lead to serious consequences to the payer, who allows the escrows to manage their payments.
APPROVAL OF THE PAYER
Before releasing the payment of the payee, the escrow asks the payer for confirmation in order to avoid any unnecessary transaction. Once the payer approves the payment, it is credited in the payee’s a/c.
After the escrow payment to the payee, the deal is deemed closed.
This is the detailed manner as how does escrow work.