Whenever one buys or sells any expensive objects or services – a sales and purchase agreement is a must. And on top of that – opening a joint escrow account between the buyer and the seller is increasingly becoming an integral part of such an agreement.
📅 August, 2020
How to buy and sell safely with an escrow account?
What is an escrow account?
An Escrow account is a joint account opened for the buyer and the seller where the funds of the transaction are stored until the transfer of goods and services is completed. It is controlled by a third party – most often a bank or other financial company. Only when the buyer confirms that the goods or services were received on time and are of the promised quality, the money for the purchase is transferred to the seller.
A secure way to buy a car 🚙
Imagine that you are buying a car from abroad. You have found the car online and agreed that the seller will bring the car to your country. What happens next? Will you pay the full amount and hope that you get a superb vehicle? Or maybe you will try to negotiate a down payment and pay the remaining amount only after you receive the purchase? These negotiations are never pleasant and the risk is always there that one of the parties might be unsatisfied and in the worst-case scenario – deceived.
An escrow account is opened to avoid such misunderstandings and risks. When buying a car, an impartial agent to the transaction, let's say Paysera LT, opens a joint account for the buyer and the seller. The buyer then transfers money for the car to this account. Once the seller sees the transfer of funds, they send the car to the buyer's country. Having received the car, the buyer may inspect the car and then give their confirmation to the agent and the seller that the goods were received in time and in an appropriate condition. Once these confirmations are received, the escrow account is unfrozen and the money is transferred to the seller of the car.
Escrow account for real estate 🏠
An escrow account can also make the process of buying real estate, e.g. an apartment, a house, or even commercial premises, a lot easier.
Imagine that you are buying a house or a building that is still inhabited by people or companies. It is often the case that tenants wait until the very last day to move out from the house that is being sold. When opening an escrow account, you may indicate a specific date for transferring premises and rights, so the seller must meet this requirement before receiving the funds.
Escrow accounts are opened to buy or sell goods and services such as:
🏠 🏢 Real estate
🚙 ⛵️ Vehicles
👷♂️🏚 Refurbishment services
Other purchases that require delivery or a sales contract 🎸📦🏎
How does it work? 🤝
The entire selling and buying process is described in five steps during which the parties constantly communicate.
1. First, the buyer and the seller sign the agreement, where the conditions of the transfer of goods are specified (quality of goods, time of transfer, and other details). An escrow account is opened.
2. Then the buyer transfers funds for the goods or services to the joint escrow account.
3. Once the seller sees the money in the account, the seller sends the goods to the buyer and provides supporting documents.
4. Having received the goods, the buyer inspects their quality and confirms receiving them.
Reports about a purchase that has not been received or was of poor quality, providing supporting documents, photos, etc.
5. If the buyer receives the goods on time and they are of good quality, money is transferred to the seller. If the goods do not correspond to the quality or other requirements listed in the agreement, the buyer returns them to the seller, submits documents supporting the return, and the money transferred to the escrow account is returned to the buyer.
What are the benefits for the seller? 🤔
An escrow account is useful not only for the buyer but also for the seller. It comes in handy for various situations – from delivering the goods to arranging a return and issuing refunds. Any seller will be relieved to have a clear and professional trade agreement, offer the buyer a transparent sales process, not to mention being able to send goods only upon confirmation from the agent that the funds were received from the buyer. Also in case the quality of the goods is claimed to be poor and need to be returned – the buyer will have to provide proof for such claims, which is only a benefit and extra protection for a seller.
What is the price of safety?
Abroad – an escrow account is a common part of any larger sales procedure. Even though this service is also widely offered in Lithuania and Latvia, very few people know about the benefits of it and tend to take a risk rather than include a third party in the management of the transaction.
However, the costs of opening anescrow account are very low when compared to the possible losses in case of an unsuccessful transaction or fraud. For example, when buying or selling a domain or a website, the price of concluding an escrow agreement starts from only EUR 10, while the price of the object of the sale is unlimited.
With an increasing number of transactions undertaken online, the likelihood of fraud also increases. People often buy or sell goods to parties that they don't personally know. In such cases – opening an escrow account is a cheap solution to mitigate any risk and trouble and is useful for both the buyers and the sellers. So it is only a question of time when it becomes common practice in countries such as Lithuania and Latvia.