The Importance of an Escrow Agreement in Real Estate

When purchasing assets such as property, you often endure a lengthy, arduous process. An escrow agreement may be part of that process to identify the terms and conditions regarding expenses, ownership, and the duties that come with it. All parties involved need responsible escrow agents to make the transition go smoothly.

As competent real estate lawyers in Phoenix, AZ, Anthony Law Group oversees fair escrow agreements. Below, we’ll walk you through what you should expect from such agreements and their role in real estate transactions.

Elements of an Escrow Agreement

Escrow agreements are contracts used to ensure that all parties involved meet the terms outlined within the contracts. Independent third parties, usually escrow agents, hold the payment until each party meets their obligations. The typical steps of escrow agreements look something like this:

  1. All parties involved draft a contract that outlines the required terms they must meet before completing the transaction. The escrow agent will assist with drafting the documents before all parties sign.
  2. One party will deposit an asset or funds into an escrow account. Asset examples may include funds to cover the purchase price for real estate or another valuable asset.
  3. The escrow agent holds the asset while the the other party meets the conditions set in the agreement.
  4. Once the selling party meets all contractual obligations, they provide documents proving that they held up their end of the deal.
  5. Finally, the agent will release the asset or funds in the account. The buyer can access their new purchase and pay the escrow agent’s fees, completing the agreement for all parties.


Escrow agents ensure sellers fulfill their duties before buyers release payment. Your agent acts as an unbiased independent third party who protects you and the other party from various liabilities or an unfair deal.

Where Are Escrow Funds Used?

Various contract types use escrow agreements. A company, government agency, or the average citizen may need an independent third party to ensure each party satisfies their obligations before closing a deal with assistance from an escrow agent.

Purchasing Properties

The average person may be familiar with escrow agreements for real estate sales. After outlining an agreement between you and the other party, your escrow agent will open a temporary account to hold the escrow funds. Once you and the other party each handle your outlined responsibilities, your agent will deliver the money or payment assets to the seller.

Insurance and Tax Funds

Mortgage providers may implement escrow agreements between their company and the home buyers. The money deposited into these accounts typically goes toward:

  • Timely mortgage payment
  • Insurance funds
  • Taxes paid promptly

Mergers Between Two Companies

When one company purchases resources/assets from another company, each entity may use an escrow agreement to facilitate transactions of money, equipment, and employees throughout the event. Both parties typically have appointed their own escrow agent or lawyer to represent their transactional requirements and contractual responsibility.

Other Purposes for Escrow Agreements

Sometimes, escrow agreements have uses beyond commercial and residential property transactions. For example, an escrow agent might ensure each party fulfilled their contractual requirements for:

  • A stock market transaction: When a company provides shares as part of its employee benefit packages, it may use an escrow contract to prevent employees from profiting from the shares for a specified timeframe. After the employee retains their position for the predetermined period, the company releases those shares, allowing the employee to sell or trade them.
  • A legal settlement: Following legal action, the court may rule that a defendant must pay the plaintiffs a specific dollar amount. An escrow agent will distribute the specified amount owed to each recipient.

Weighing the Risks and Benefits of Using an Escrow Account

Although escrow agreements can ensure secure transactions between each party, you should be cautious and use due diligence before signing contract documents and agreeing to a sale. Whether you are a buyer or a seller, you need to be aware of a scam transaction or a manipulative additional party.

The Risks of Escrow

Escrow agreements can subject you to a few risks, the other person involved among them. Should the other participating entity fail to deliver funds or other agreed-upon terms, you need competent, qualified representation to nullify the escrow agreement and pursue legal action within the jurisdiction. Additionally, exercise caution when:

  • Choosing an escrow agent: It is in your interest to find an established, reputable escrow agent to avoid excessive fees or delivery scams. Remember, your agent must protect escrow funds on behalf of the buyer and the seller.
  • Selecting or agreeing to the transaction requirements to be fulfilled: Avoid biting off more than you can chew when signing an escrow agreement. If you cannot make good on the delivery of predetermined actionables — especially long-term commitments — you should avoid the escrow agreement altogether or work on the conditions with your escrow representation.

The Benefits of Escrow

After applying due diligence, you can reap several advantages from secure escrow agreements facilitated by a knowledgeable and trustworthy third party, such as:

  • Quality purchases: When purchasing a home, you want to avoid structures or properties prone to excessive issues within the first years. An escrow agreement ensures professional inspections, transparency, and fulfilled preparation tasks to protect your experience in your new home.
  • Safe deposit: Money is a vulnerable, fluid resource. Con artists commonly coerce the other party into submitting an advance payment while not completing their expected duties. An escrow agent protects all involved and the money at stake.

Consult With Anthony Law Group to help find a Qualified Arizona Escrow Agent

Experience what a real estate lawyer does to protect your purchase with an escrow agreement. Call 602-362-2396 to draft and facilitate a secure agreement with assistance from our experienced attorneys at Anthony Law Group.

Fields marked with an * are required

Anthony Law Group

Anthony Law Group