Creating an Escrow Agreement

06/09/2023

26 min

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Creating an escrow agreement is an integral part of any transaction involving large sums of money; it helps to safeguard the interests of both parties involved. An escrow agreement is a legally binding contract between two parties, typically a buyer and seller, that sets out how funds or other assets are to be stored, invested and released upon completion of the transaction. It’s essential to understand why these agreements matter and how they can benefit all parties involved.

Having worked with this type of agreement for many years as a lawyer, I have seen first-hand how important it is in providing legal protection for those taking part in transactions. A well-crafted escrow agreement ensures that both sides are kept secure throughout the process and both parties can be assured that the money is held safely until the details have been met. This includes protecting against fraud by having clear stipulations on how funds are to be treated and by increasing public confidence in the system.

At Genie AI we provide free escrow agreement templates, which help streamline the entire transaction process while reducing risk and disputes arising from misunderstandings or miscommunications between both sides. By using our step-by-step guidance you can access our template library today without signing up to an account - after all, we’re only here to help!
Read on below for further information on how you can draft your own high quality legal documents with minimal fuss - safe in the knowledge that with Genie AI’s dataset and community template library you have all your bases covered when it comes to creating an effective escrow agreement for your specific needs.

Definitions

Escrow Agreement - A legal document between two or more parties, usually involving the transfer of money, goods, or services.
Scope - The range of a particular agreement, including the parties involved, the amount of money, goods, or services being exchanged, the terms of the agreement, and any contingencies.
Purpose - The reason an agreement is being created and what it is intended to achieve.
Responsibilities - The duties the parties involved have in relation to the agreement.
Execute - To officially complete a document with signatures and/or exchanges.
Close - To finalize all relevant documents and funds being exchanged.
Terms - The conditions and clauses of an agreement.
Dispute Resolution - The process of resolving an argument between two or more parties.
Remedies - The available solutions for resolving a dispute, such as damages, specific performance, or an injunction.
Monitor - To regularly review and take action when necessary to ensure all parties are in compliance with the agreement.

Definition and purpose of an escrow agreement
Researching the relevant legal frameworks
Understanding the scope of an escrow agreement
Identifying the purpose of an escrow agreement
Roles and responsibilities of the parties involved in an escrow agreement
Identifying the parties to an escrow agreement
Specifying the roles and responsibilities of each party
How to prepare an escrow agreement
Drafting the escrow agreement
Obtaining legal advice
Finalizing the escrow agreement
Negotiating an escrow agreement
Identifying the terms to be negotiated
Negotiating the terms of the agreement
Reaching a consensus on the terms
Important terms of an escrow agreement
Identifying the key terms of the agreement
Negotiating the terms of the agreement
Finalizing the important terms
How to execute and close an escrow agreement
Executing the escrow agreement
Finalizing the closing process
Documenting the completion of the escrow agreement
Dispute resolution and remedies
Identifying any potential disputes
Negotiating the dispute resolution process
Specifying the remedies available
Legal implications of an escrow agreement
Understanding the applicable laws
Researching the relevant case law
Identifying the legal implications of the agreement
Monitoring the escrow agreement
Establishing a process for monitoring the agreement
Ensuring compliance with the agreement
Taking appropriate action when necessary
Terminating the escrow agreement
Identifying the circumstances in which the agreement may be terminated
Negotiating the termination process
Executing the

Get started

Definition and purpose of an escrow agreement

Understand what an escrow agreement is: an agreement between three parties, where the first party puts an asset in the control of a third party (escrow agent) to be held until the condition of the agreement is satisfied
Learn the purpose of an escrow agreement: to ensure that all parties involved in a transaction are satisfied with the terms of the agreement before any assets are released
Research the types of assets that can be placed in escrow: money, contracts, deeds, stocks, bonds, and other tangible or intangible assets
You know you can check this off your list and move on to the next step when you have a good understanding of the definition and purpose of an escrow agreement.

Researching the relevant legal frameworks

Identify the applicable state laws that govern escrow agreements
Research the statutes, case law, and regulations relating to the laws in your state
Consult with a legal expert to ensure that the escrow agreement complies with all relevant laws
Make sure the escrow agreement is in accordance with the requirements of the applicable state laws
Read up on the latest changes and updates to the law to make sure you’re compliant

When you can check off this step:

When you have researched the relevant applicable state laws and consulted with a legal expert.
When you are confident that the escrow agreement is in accordance with the requirements of the applicable state laws.
When you have read up on the latest changes and updates to the law to make sure you’re compliant.

Understanding the scope of an escrow agreement

Understand the basics of an escrow agreement and its purpose
Research and become familiar with the relevant legal frameworks
Determine the scope of the agreement, including the parties involved, the amount of funds to be held in escrow, and the conditions that must be met for the funds to be released.
When you are able to understand the scope of the escrow agreement and are familiar with the relevant legal frameworks, you can move on to the next step.

Identifying the purpose of an escrow agreement

Determine the purpose of the escrow agreement and ensure all parties agree to the terms
Understand that the escrow agreement is a binding agreement between the parties, and any changes must be agreed to by all involved
Identify any potential risks to all parties involved in the agreement
Ensure all parties are aware of the obligations and responsibilities associated with the escrow agreement
Once all parties have agreed on the purpose and scope of the escrow agreement, you can move on to the next step.

Roles and responsibilities of the parties involved in an escrow agreement

Understand the roles of the parties in an escrow agreement:
Escrow Agent: Responsible for holding the escrow funds and ensuring the escrow agreement is followed
Grantor: The party who deposits their funds into escrow
Obligee: The party who is to receive the funds from escrow
Determine the responsibilities of each party involved in the escrow agreement:
Escrow Agent: Responsible for safeguarding the escrow funds, administering the escrow agreement, and releasing the funds to the obligee when the conditions of the escrow agreement are met
Grantor: Responsible for depositing the funds into escrow as required and following the terms of the escrow agreement
Obligee: Responsible for providing evidence to the Escrow Agent that they have met the conditions of the escrow agreement in order to receive the funds
When you have determined the roles and responsibilities of all parties involved in the escrow agreement, you can move on to the next step.

Identifying the parties to an escrow agreement

Identify the buyer and seller of the property involved in the escrow agreement
Determine if a third party is necessary to facilitate the transaction
Identify the escrow agent, who will hold the funds and any documents related to the escrow agreement
Ensure that all parties agree to the terms of the escrow agreement

You can check this off your list when all parties have been identified, and all parties have agreed to the terms of the escrow agreement.

Specifying the roles and responsibilities of each party

Understand the roles of the parties involved in the escrow agreement, including the buyer, the seller, and the escrow agent - this is important to ensure that the terms of the agreement are met.
Identify the roles and responsibilities of each party, in order to ensure that they understand what they are expected to do and how they should conduct themselves.
Outline how the parties will handle any disputes that arise and how they will resolve them.
Make sure that the responsibilities of each party are clearly defined and that all parties understand their respective roles.

Once you have identified the roles and responsibilities of each party and outlined how disputes should be handled, you can check this step off your list and move on to the next step.

How to prepare an escrow agreement

Research escrow laws in your jurisdiction and make sure you are familiar with all applicable rules and regulations
Identify and list the parties involved in the escrow agreement and their respective roles
Agree on the terms of the escrow agreement, including the specific items or services to be exchanged, the payment method, and the timeline
Outline the duties and responsibilities of each party, including the escrow agent
Include the details of the escrow agreement in the document and make sure all parties are in agreement
Have the escrow agreement signed by all parties

When you have completed the above steps, you can move on to the next step of drafting the escrow agreement.

Drafting the escrow agreement

Gather all relevant information and documents needed to create the escrow agreement
Draft the agreement, including all relevant information, such as the parties involved, purpose of the escrow, payment details, and any special conditions or provisions
Have the agreement reviewed and approved by all parties involved
Once the agreement has been approved by all parties, it is ready to be signed and executed
You will know that this step is complete when the escrow agreement has been drafted, reviewed, and approved by all parties involved.

Obtaining legal advice

Consult with a qualified attorney to make sure that the escrow agreement complies with all applicable laws and regulations.
Ask the attorney to review the document and provide any legal advice or feedback.
When you are satisfied with the legal advice, you can move on to the final step of finalizing the escrow agreement.

Finalizing the escrow agreement

Obtain consent from all parties.
Finalize the escrow agreement by signing and executing the document.
Have the escrow agreement witnessed and certified if necessary.
Obtain a copy of the agreement and store it securely.
You will know when you have completed this step when all parties have signed the agreement and you have a copy of the agreement stored securely.

Negotiating an escrow agreement

Meet with the other parties involved to discuss and negotiate the terms of the escrow agreement.
Agree on a price for the property or asset being held in escrow.
Decide who will be responsible for paying the escrow fees, if any.
Reach an agreement on the timeline for completing the escrow transaction.
Determine who will be responsible for providing updates on the escrow transaction.
Agree on a method of communication between all parties involved.
Decide who will be responsible for verifying that all conditions of the escrow agreement have been met.
Come to an agreement on what will happen if any of the conditions of the escrow agreement are not met.
When all parties have agreed on the terms of the escrow agreement, you can check this step off your list and move on to the next step.

Identifying the terms to be negotiated

Gather all parties involved in the agreement and clearly explain the purpose of the escrow agreement.
Discuss the details of the agreement and identify all the terms that need to be negotiated.
Make a list of the terms that need to be discussed and settled before the agreement can be finalized.
Make sure everyone involved is clear on the terms and their roles in the agreement.

When you have identified all the terms to be negotiated and each party involved is clear on their roles and responsibilities, you can move on to the next step of the guide.

Negotiating the terms of the agreement

Determine who is responsible for each party in the agreement
Consider the payment terms and the delivery terms
Identify any risks or contingencies that need to be addressed
Resolve any disputes that may arise about the terms of the agreement
Negotiate and come to a consensus on all terms of the agreement
Document the agreed upon terms in a written contract
Have all parties involved sign the contract
When all parties have agreed to the terms and signed the contract, you can move on to the next step.

Reaching a consensus on the terms

Come to an agreement with the other party on the terms of the escrow agreement
This will involve communicating your expectations to the other party, listening to their concerns, and revising the agreement accordingly
Make sure all parties are in agreement before moving forward with the escrow agreement
When you come to a consensus, record the agreed-upon terms clearly and in writing
You’ll know when you can check this off your list when all parties have agreed to the terms of the escrow agreement and have signed the document.

Important terms of an escrow agreement

Make sure to include all the basic terms of the agreement such as the escrow amount, the parties involved, the purpose of the escrow, and the timeline for the agreement.
Make sure to also include any additional terms that the parties have agreed upon, such as how potential disputes will be handled, who will be responsible for the escrow fees and other costs, and the timeline for releasing funds.
Once all the terms have been agreed upon, you can move on to the next step.

Identifying the key terms of the agreement

Determine the amount of money to be held in escrow
Identify the parties involved in the escrow transaction
Define the purpose of the escrow agreement
Describe the disbursement of the escrow funds
Specify the party responsible for managing the escrow funds
Set out the timeframe for the escrow period

You can check this off your list when you have determined the key terms of the agreement, such as the amount of money to be held in escrow, the parties involved in the transaction, the purpose of the escrow agreement, the disbursement of the funds, the party responsible for managing the funds, and the timeframe for the escrow period.

Negotiating the terms of the agreement

Schedule a meeting with all relevant parties to discuss and negotiate the terms of the agreement
Identify and discuss potential conflicts or issues that may arise due to the agreement
Clearly define the rights and obligations of all parties involved
Reach a consensus on all the important terms of the agreement
When all parties agree on the terms and sign the agreement, you can move on to the next step.

Finalizing the important terms

Ensure that the escrow agreement addresses all the negotiated terms.
Make sure that all parties agree to the terms and sign off on the agreement.
Take a copy of the signed agreement for each party’s records.
When all parties have signed, the escrow agreement is complete and can be submitted for closure.

How to execute and close an escrow agreement

Have the buyer and seller sign the escrow agreement
Have the buyer deposit the escrow funds into the escrow account
Have the seller deliver the goods or services
Have the buyer accept the goods or services
Have the escrow agent release the funds to the seller
Have the escrow agreement closed
Once all steps have been completed, the escrow agreement is closed and the transaction is complete.

Executing the escrow agreement

Contact the escrow agent and provide them with the necessary paperwork
Sign the escrow agreement
Have the other parties involved in the agreement sign the escrow agreement
Submit the signed escrow agreement to the escrow agent
You will know that you can move on to the next step once the escrow agent has received and accepted the signed escrow agreement.

Finalizing the closing process

Confirm that all parties have signed the escrow agreement
Ensure that all payments have been received and deposited
Review the paperwork and make sure the title is properly recorded
Notify all parties of the completion of the escrow agreement
Issue a final closing statement
How you’ll know when you can check this off your list and move on to the next step: When all parties have signed off on the escrow agreement and any payments have been received and deposited, you can move on to the next step of documenting the completion of the escrow agreement.

Documenting the completion of the escrow agreement

Ensure that all parties are present and that the closing process is completed.
Obtain the closing documents from the parties and review them for accuracy.
Have all parties sign the documents and have them notarized if required.
Obtain the funds from the buyer and transfer them to the escrow agent.
Have the escrow agent distribute the funds to the seller and confirm that the funds have been received.
Obtain the deed for the property from the seller and transfer it to the buyer.
Have the buyer and seller sign a closing statement.
Have the escrow agent sign the closing statement as well.
Record the deed with the county recorder’s office.
Provide copies of the closing documents to all parties.

How you’ll know when you can check this off your list and move on to the next step:

Once all funds have been received, distributed, and the deed has been recorded, you can proceed to the next step.

Dispute resolution and remedies

Ensure that the agreement has a dispute resolution clause outlining the steps to be taken in the event of a dispute
Discuss with both parties what kind of dispute resolution they are comfortable with, such as arbitration or mediation
If arbitration is chosen, identify the state or country’s laws that will govern the contract
Determine the consequences of a breach of contract and how you will enforce the contract’s terms
Draft the dispute resolution clause and ensure that it is clearly stated in the agreement
When both parties have agreed on the dispute resolution clause, the clause can be signed and the escrow agreement is complete

You will know when you can check this off your list and move on to the next step when both parties have agreed on the dispute resolution clause, and it has been signed and included in the escrow agreement.

Identifying any potential disputes

Review the agreement and identify any potential disputes that may arise in the future
Contact the other parties involved in the agreement and discuss any areas of the agreement that could potentially lead to a dispute
Make necessary modifications to the agreement to address any potential disputes
Confirm revisions with all parties involved in the agreement
Once all potential disputes have been identified and addressed, you can move on to the next step of negotiating the dispute resolution process.

Negotiating the dispute resolution process

Determine what type of dispute resolution process is appropriate for the particular escrow agreement
Select a dispute resolution process such as arbitration, mediation, or litigation
Specify the rules and procedures to be followed in the dispute resolution process
Outline the consequences for a party’s failure to comply with the dispute resolution process
Consider the costs associated with the dispute resolution process and plan for them
When you have negotiated the dispute resolution process, check it off your list and move on to the next step.

Specifying the remedies available

Decide on the remedies available for each party in the case of a breach of the escrow agreement.
Discuss which party will be responsible for following through with the remedies.
Draft a document specifying the remedies available for each party in the event of a breach of the escrow agreement.
When the document is agreed upon by both parties, the step is complete and you can move on to the next step.

Legal implications of an escrow agreement

Understand the applicable laws and regulations governing the escrow agreement in your jurisdiction, including the Uniform Commercial Code
Review any existing case law or precedents to understand how the courts interpret the escrow agreement
Understand the potential legal implications of entering into an escrow agreement, both for the parties involved and any third parties
Seek legal advice to ensure that the escrow agreement is legally binding and enforceable
When you are satisfied that you understand the legal implications of the agreement, you can check this step off your list and move on to the next step.

Understanding the applicable laws

Identify the relevant laws in the jurisdiction of the agreement
Research the applicable laws that govern escrow agreements
Familiarize yourself with the statutory language related to escrow agreements
Determine if there are any local, state or federal laws that apply
Consult an attorney if necessary to ensure compliance with all applicable laws

You’ll know when you can check this off your list and move on to the next step when you have identified the relevant laws, researched the applicable laws that govern escrow agreements, familiarized yourself with the statutory language related to escrow agreements, determined if there are any local, state or federal laws that apply, and consulted an attorney if necessary to ensure compliance with all applicable laws.

Researching the relevant case law

Research legal databases and case law to identify any applicable cases that may be relevant to the Escrow Agreement
Gather relevant documents from the courts and other legal sources
Read and analyze the applicable cases to identify any potential legal issues and implications that may affect the agreement
Make note of any case law that could be useful in negotiating the terms of the agreement
When you are sure that you have gathered all of the relevant case law and considered the potential legal implications, you can move on to the next step.

Identifying the legal implications of the agreement

Research the applicable laws and regulations related to the escrow agreement in your jurisdiction
Understand the tax implications of the escrow agreement, including any potential withholding taxes
Understand the rights and responsibilities of each party in the escrow agreement
Identify any potential risks associated with the escrow agreement
Understand the process and timeline for dispute resolution
Ensure that all parties are in agreement with the terms of the escrow agreement
When you have identified all legal implications, the step is complete and you can proceed to monitoring the escrow agreement.

Monitoring the escrow agreement

Set up a timeline for when escrow funds should be released.
Establish a process for tracking the escrow account, including who will be responsible for monitoring it and how any changes will be recorded and reported.
Set up a system to alert the parties when the account balance changes or when the money is released.
Establish criteria for when the escrow agreement should be reviewed and updated.
When all of the criteria is met, you can check off this item in your step-by-step guide and move on to the next step: Establishing a process for monitoring the agreement.

Establishing a process for monitoring the agreement

Set up an internal process to review the escrow agreement and any related documentation regularly
Set up a timeline to review the agreement (e.g. annually, quarterly, etc.)
Ensure all parties involved are aware of the timeline and process for monitoring the agreement
Establish a process for updating the agreement as needed
When the process and timeline are set up, you can move on to the next step of ensuring compliance with the agreement.

Ensuring compliance with the agreement

Review the agreement regularly to ensure that all parties are meeting their obligations.
Make sure that all relevant documents are kept up-to-date and all parties are aware of any changes to the agreement.
Monitor the progress of the transaction and ensure that all parties are adhering to the timeline and any other deadlines outlined in the agreement.
If necessary, take appropriate action to enforce the terms of the agreement, such as issuing a warning or taking legal action.
When all obligations under the agreement have been fulfilled, close out the escrow agreement.

You’ll know you can check this step off your list when you have reviewed the agreement regularly, monitored the progress of the transaction and taken appropriate action to enforce the terms of the agreement as necessary.