What Does Escrow Mean? A Simple Australian Explanation
Escrow is a payment arrangement that separates funding from final settlement. One party secures the agreed money within the escrow vehicle, while other party is paid later, in accordance with the escrow terms.
Escrow is most helpful when two parties are ready to transact but neither wants to absorb the payment risk.
Escrow in plain English
Imagine a buyer and seller who do not know each other. The buyer does not want to send a large direct payment before receiving the item because they fear the seller may take the money and fail to deliver (They don’t trust the seller). The seller does not want to hand over the item without receiving payment because they fear the buyer will not pay (They don’t trust the buyer). Escrow creates trust between the buyer and seller by holding the buyers’ payment securely until the seller delivers.
An Example of escrow
Mark is selling his favourite guitar online for $1000. Tony wants to buy Marks guitar but he doesn’t want to send $1000 and just hope that Mark sends the guitar. Tony is also concerned that Mark might be lying about the condition of the guitar and that it might be damaged after all the years of use.
Mark could send the guitar so that Tony can be sure it arrives, and can check its condition, but then he risks Tony not sending the $1000 payment.
This is where Escrow is useful. First, Tony transfers $1000 to an escrow account. Second, Mark can see that there is $1000 in the escrow account and so he sends the guitar to Tony. Lastly, Tony receives the guitar, checks its condition, and then releases the $1000 from the escrow account which transfers straight to Mark.
But What If?
- What if Mark never send the guitar?
- The $1000 is held in the escrow account. If it is found that the guitar never arrived, the $1000 is transferred back to Tony.
- What if Tony received the guitar and then takes his money back?
- Tony can not withdraw his $1000 from the escrow account without a valid reason. If Tony says that the guitar didn’t arrive, then the money is still held in the escrow account until both parties understand who is at fault.
- What if Tony tells Mark that the money is waiting in the escrow account and that he should send the guitar?
- Mark can see for himself if the $1000 has been deposited in the escrow account. Escrow arrangements allow for sellers to verify funding.
When can escrow be useful?
- Transactions between people who do not already know each other;
- business purchases where payment timing matters;
- Service transactions where the payer and payee want funding and settlement to occur at different stages.
- transactions of value that is significant to the buyer such that delivery must be assured.
- transactions in which the seller needs to complete significant work and must be assured of payment.
- Transactions in which the seller must be paid at a specific time.
What escrow does not mean
Escrow does not automatically guarantee an item, workmanship, ownership, authenticity or commercial performance. Escrow simply holds the funds securely until both parties are satisfied and confirm to release the funds. If the Buyer and Seller do not agree on the final release of funds, or the return of funds, they enter dispute resolution until both parties are satisfied.
Escrow account or escrow service?
An escrow account is an account dedicated to holding the funds for a transaction. The Buyer can deposit into the escrow account, and the Seller can see the account (to ensure that funds have arrived), but neither party can individually access the funds until they agree that the product/service has been delivered, or that the funds should be returned to the Buyer.
An escrow service is the provider of the escrow account and the supporting business systems involved in its function and the smooth operation of the transactions. GoEscrow is an example of an escrow service in Australia that facilitates escrow transactions at all levels, from every day consumer purchases to commercial business transactions and beyond into high-value, nuanced deals.
How does GoEscrow work?
- The parties establish an eligible transaction.
- The Payer funds the agreed amount.
- The Payee can independently verify the transaction funding status through the GoEscrow app (They can see that money has been deposited into escrow).
- The parties complete their agreed transaction step (The seller sends the item, or provides the service).
- Settlement occurs in accordance with the transaction details when the applicable requirements are met.
Frequently asked questions
Is escrow useful for a private sale?
It can be where buyer and seller want payment funded before goods are supplied, without requiring the buyer to pay the seller directly before the agreed handover or inspection conditions have been met.
Should a seller trust a payment screenshot?
A screenshot is not the GoEscrow funding confirmation. When GoEscrow is being used, the seller should rely on the transaction status in GoEscrow and wait for confirmation that the funds are in escrow before handing over or shipping the item.
Does GoEscrow check the item I am buying?
No. GoEscrow manages the financial interaction. It does not inspect or supply the goods and does not independently verify their quality, condition, authenticity, ownership or title.
Who releases the money to the seller?
The GoEscrow product is designed around payer-controlled settlement: once the applicable conditions are met, the payer authorises settlement and GoEscrow remits the funds to the payee in accordance with the transaction and its terms.
What happens if buyer and seller disagree?
The funds can remain in escrow while the matter is addressed under the applicable GoEscrow cancellation or dispute process. The outcome depends on the circumstances, party instructions and the GoEscrow Terms of Use; using escrow does not guarantee a particular dispute outcome.
Can GoEscrow be used for an interstate private purchase?
Potentially, yes, where the transaction is eligible. Escrow can separate confirmed funding from later shipment, inspection or handover, which may be useful when buyer and seller cannot meet in person.
Learn more
Read Escrow Services in Australia, Escrow Accounts in Australia and Safe Payment for Private Sales.
Ready to protect the payment?
Use the official GoEscrow mobile app or web app to start your transaction. Review the transaction details, fee and applicable terms before funding.
For formal information about the service, see the Product Disclosure Statement, Financial Services Guide and Terms of Use.
