An escrow company streamlines a third-party platform for an escrow contract, which outlines the legal terms and conditions between two participants involved in a financial agreement. During the contractual process, an escrow agent holds the funds in a third-party account until the specific terms and conditions of the contract are fulfilled.
Once all the contractual conditions are fulfilled, the escrow agent delivers the funds and other assets to the respective parties.
Graana.com, Pakistan’s smartest property portal, provides a complete guide to understanding escrow companies and contracts.
Uses of Escrow Contracts
Escrow contracts are insurance against property or money scams. Due to this element of security, they are used in several business dealings, the most common of which are listed below:
- Mergers and acquisitions
- Real estate deals
- Stock market
- Legal settlement
Use of Escrow Contracts in the Real Estate Business
Recently, the real estate business has witnessed unprecedented growth in Pakistan. Several commercial and residential projects are providing opportunities for investments. However, the booming real estate sector has also created a pool of scammers and fake agents who deprive the investors of their assets.
To avoid such scams and frauds, real estate investors are turning to escrow companies and agents for secure deals. The trend is gaining momentum each day, with several escrow companies being established all across Pakistan, that provide a third-party security agreement for safe property dealings.
Elements of an Escrow Agreement
The escrow agreement between the two participants is legally important. It ensures a safe payment and property transfer method. Due to its significance, the agreement should contain specified information about the deal. Otherwise, it can lead to broken deals.
The following elements must be a part of the escrow agreement:
- Escrow agent identity and its proof
- Definitions of specific words in the agreement
- Details about total funds and bilateral or unilateral conditions for the release of funds
- Conditions in which escrow agents can use the funds
- Duties and services of the escrow agent
- Agent’s fee and all the expenses
- Details about legalities, jurisdiction, and place of agreement
Tips to Choose the Right Escrow Company
Before making a property deal, it is essential to choose the right escrow company and agent for a successful venture. Therefore, you must consider the following factors.
- Professionalism: Organisation Culture
- Communication and Response
- Escrow Charges and Expenses
A company’s reputation and public opinion should be your first clue. Past clients are the right sources to consult because they will be honest about their experience with the company. Moreover, you can read client reviews on the company’s website and go through their portfolio.
A well-settled and well-reputed escrow company will handle all the documentation and funds transfer properly. Therefore, you can always count on it for the best professional services.
With a poorly reviewed company, you might risk losing your money and important documents. So, be vigilant and conscious of the company’s reputation.
Professionalism: Organisation Culture
Apart from the buyer and seller, brokers, attorneys, title companies, etc. are also involved in a single property deal. A professional escrow company and agent will keep all the confidential and sensitive documents organised and safe for proper use at each step of the deal. They will guide you at each step, provide alternatives, and will not cause unnecessary delays due to improper behaviour. You need to be aware of the company’s culture and the process through which they handle the deals. If your escrow agent or company is not well-organised, your business transaction may end up being compromised.
Communication and Response
Most people are unaware of the legalities of the process during property deals. They lack information regarding the required steps of business deals as well as transaction terms and conditions. So, they have to rely completely on their escrow company. An escrow company’s response to the seller’s or buyer’s legal needs tells a lot about the company’s professionalism.
A competent escrow company is available for communication with both parties at any given time.
Business partners also tend to get stressed during the lengthy legal process. Therefore, pick a punctual, prompt, and attentive escrow company that can ease the process.
The right location of the escrow company is also essential. In case of any emergency or delays in payments, the company’s office must be within reach. If your escrow company’s office is out of your town, you might face troubles during unexpected situations.
Escrow Charges and Expenses
Escrow companies have a fixed percentage or amount that they charge. However, some charge above the usual market rates and scam the clients. Hence, you must keep charges and expenses in mind as well while choosing an escrow company.
Benefits of an Escrow Agreement
Business dealings involving large amounts of money are complex and prone to risks. Hiring an escrow agent is useful to remove the likelihood of money loss or scams. The following are some benefits of escrow agreements:
- Due to the presence of a third-party agent, all the dealings are safe and secure.
- Escrow agreements ensure that both parties fulfil their contractual obligations.
- Chances of scam or fraud dealings also decrease.
To get more information about real estate investment in Pakistan, visit Graana.com
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