Key Takeaways
- An escrow agent holds funds or assets until transaction terms are met.
- Escrow agents act as neutral middlemen with fiduciary duties to both parties.
- They are commonly used in real estate transactions to secure property and monitor agreements.
- Escrow agents may be attorneys or title companies holding deeds until sale conditions are satisfied.
- Unlike trustees, escrow agents serve both parties equally under an escrow agreement.
What Is an Escrow Agent?
An escrow agent is a neutral third party who holds money, documents, or property in trust until a transaction’s terms are met (or a dispute is resolved).
Often, an attorney or notary, the agent has a fiduciary duty to both sides and releases the assets only when conditions are satisfied, which is why escrow is common in real estate to protect buyers and sellers.
Understanding the Role of an Escrow Agent
An escrow agent essentially serves as a neutral middleman in the context of an escrow agreement. An escrow agreement is a contract between two parties whereby each agrees that a third party should hold an asset on their behalf until their transaction is completed. The funds or assets are held by the escrow agent until it receives the appropriate instructions or until predetermined contractual obligations have been fulfilled. Money, securities, funds, and titles to real estate can all be held in escrow.
Comparing Escrow Agents and Trustees
There are similarities between the role of a trustee and the role of an escrow agent, but there are significant differences as well. The two roles are similar in that in each case a third party holds property “in trust” for someone else and has a fiduciary duty. However, a trustee has a duty toward the beneficiary (or beneficiaries) of the trust and must act in their best interest. In contrast, an escrow agent’s duty is toward both parties of a transaction, and they are tightly bound by the terms of the escrow agreement.
The Role of Escrow Agents in Real Estate Deals
Escrow agents are typically associated with selling or buying a home or other real estate. In some jurisdictions, including the United States, they may be referred to as title agents. In these cases, the escrow agent secures the property and examines documents to make sure the terms of the sale are met on each end, thus serving both the buyer and seller in the transaction.
When it comes to buying and selling a home, an escrow agent may be a title company. In such cases, the title company holds the deed to the property in escrow until all of the terms of both the buyer and seller are met. The buyer may deposit the money for the purchase, or at least the down payment, with the escrow agent, which serves to validate the transaction and reassure the seller until last-minute closing terms are met. The amount in escrow is then transferred to the seller, and the property deed to the buyer, once all the conditions for the sale are satisfied.
In summary, whether the escrow agent is a business or an individual, the purpose they serve is that of a neutral, trusted third party to transactions that may involve persons who never end up meeting each other.
The Bottom Line
An escrow agent is a neutral third party that holds funds or property and releases them only when both sides meet the contract terms, which is why escrow is common in real estate before money or deeds transfer.
Unlike a trustee, the escrow agent owes duties to both parties, providing reassurance when the transacting parties may never meet.