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What is escrow?

Escrow is a financial arrangement where a third party, known as an escrow agent, holds and regulates payment of funds or assets between two parties involved in a transaction. The escrow agent ensures that the terms and conditions agreed upon by both parties are met before the funds or assets are released.

In a normal transaction, money goes to the seller and a product/service goes to the buyer and its all over. Sometimes, especially with high value items, there needs to be a delay while all of the promised nature of the product/service is verified.

During that delay, the buyer has to provide the money to prove they're serious about buying, but the seller shouldn't get the money until everything is checked out. The money, therefore, is set aside for a while and belongs to neither person.

During that time, an escrow agent (e.g Lipasafe) holds onto the money with promise to give it to the seller if everything checks out, or to give it back to the buyer if the product/service isn't what was promised. While the escrow agent holds on to the money, it is said to be in escrow.

Here's how the typical escrow process works:

  1. Buyer and Seller agree to terms
  2. Buyer submits payment to Escrow
  3. Seller delivers goods or service to buyer
  4. Buyer approves goods or services
  5. releases payment to seller

Escrow is commonly used in real estate transactions, mergers and acquisitions, and large online transactions. It provides a level of security for both the buyer and the seller, as it ensures that each party fulfills their obligations before the transaction is completed. The escrow process helps prevent fraud and promotes a smoother, more secure exchange of goods or services.