James Chen, CMT is an expert trader, investment adviser, and global market strategist.
Updated December 30, 2020 Reviewed by Reviewed by Erika RasureErika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.
An escrow agent is a person or entity that holds property in trust for third parties while a transaction is finalized or a disagreement is resolved. The role of escrow agent is often played by an attorney (or notary in civil law jurisdictions). The escrow agent has a fiduciary responsibility to both parties of the escrow agreement.
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.
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.
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.