Definition of Escrow

The definition of escrow, in its most basic sense, is that it is a form of assurance that the parties involved in a given transaction will actually uphold their ends of the transaction. This definition of escrow revolves around the conception of escrow as an agreement in which a third party agrees to pay money to one (or even both) of the two parties involved in the transaction once the appropriate parts of the transaction agreement have been fulfilled. The two parties would, in other words, when employing an escrow, pay into the third party instead of exchanging money directly.

Escrow thus offers a certain amount of reassurance on a payment, as it ensures that the money will not go directly to the other party before the other party has completed some agreed upon promise or service. The definition of escrow generally focuses on the term, meaning specifically that escrow is the money being granted to the third party for “safe-keeping”.

The definition of escrow was always such that, for the vast majority of transactions, it simply was not worth it for the participants to seek out any element of escrow. Escrow was only important for particularly high-value transactions. But because of the advent of Internet services which provide escrow services for low costs, escrow is now being used in many types of transactions, some of which are for very low values. The legal definition of escrow ensures that a given entity can only provide escrow services if it is licensed as such by the government.