Introduction
Escrow is a
trusted and secure way to handle payments and documents during real estate
transactions. It involves a neutral third party—called an escrow agent—who
holds the buyer’s funds or key paperwork until all agreed conditions are met.
In India’s
real estate market, escrow adds a much-needed layer of safety for both buyers
and sellers. Whether it’s ensuring timely construction, verifying approvals, or
completing legal paperwork, escrow makes sure that money only moves when
everything is in place.
This blog
explains how escrow works in Indian real estate deals, its step-by-step
process, key benefits, how it compares to traditional payments, and how it
aligns with RERA regulations.
Table of
Contents
1.
What
is Escrow?
2.
How
Escrow Works – Step by Step
3.
Benefits
of Using Escrow in Property Deals
4.
Escrow
vs Traditional Payment Methods
5.
Escrow
and RERA Rules in India
6.
Tips
for a Smooth Escrow Process
7.
Common
Mistakes to Avoid
8.
Conclusion
What is
Escrow?
Escrow is a
process where a neutral third party (called an escrow agent) holds money or
documents during a property deal.
The funds
are only released when both the buyer and seller meet the agreed conditions.
This protects both sides from fraud or delays.
In India,
banks or licensed companies usually act as escrow agents.
How
Escrow Works – Step by Step
1.
Buyer and Seller Sign a Deal
They agree
on price, milestones, and documents needed.
2.
Escrow Account is Opened
Buyer
deposits the money in an escrow account. Documents can also be stored.
3.
Funds Released in Parts
The money is
released only when specific milestones are completed. For example:
1.
Project
approval received
2.
Floor
slab completed
3.
Occupancy
certificate issued
4.
Inspections Take Place
The buyer or
a professional checks the work before payment moves forward.
5.
Final Payment and Transfer
Once all
steps are done, the final amount is paid, and the property ownership is
transferred.
Benefits
of Using Escrow in Property Deals
1.
Safer Transactions
The money is
only released after the builder delivers on promises.
2.
Less Risk of Fraud
Prevents
misuse of funds or fake promises by sellers.
3.
Better for Buyers and NRIs
Especially
helpful for NRI buyers or people who can’t visit often.
4.
Milestone-Based Payments
Keeps the
builder motivated to complete work on time.
5.
Fewer Legal Disputes
Terms are
clear, and money flow is secure.
Escrow vs
Traditional Payment Methods
| Traditional Method | Escrow Method |
| Payment Control | Builder receives full/large payment early | Payment released in stages |
| Risk of Fraud | Higher | Lower due to neutral third party |
| Transparency | Low | High – milestones and inspections |
| Suitable for NRIs | No | Yes |
| Legal Safety | Weak | Stronger with clear contracts |
Escrow
and RERA Rules in India
Under RERA
(Real Estate Regulatory Authority) rules, builders must keep 70% of buyers’
money in a separate account. This acts like an escrow account.
The builder
can use this money only for that specific project. This brings transparency and
stops fund misuse.
Using an
official escrow account takes this a step further and ensures money is released
only after set conditions are met.
Tips for
a Smooth Escrow Process
1.
Choose a Trusted Escrow Agent
Pick a
licensed bank or a well-known escrow service.
2.
Define Milestones Clearly
For example:
“First floor slab completed” or “Completion certificate received”.
3.
Use a Legal Expert
Get your
agreement checked by a property lawyer.
4.
Keep All Records
Save
receipts, reports, and communication for future reference.
5.
Monitor Progress
Ask for
updates and photos from the site.
Common
Mistakes to Avoid
1.
Not Reading the Escrow Agreement
Understand
the terms before signing.
2.
Vague Milestones
Use clear
and measurable steps to release funds.
3.
Skipping Legal Help
Always
involve a lawyer for large transactions.
4.
Not Verifying the Escrow Agent
Avoid
unknown or unlicensed agents.
Conclusion
Escrow is a
smart and safe way to handle real estate payments in India. It protects both
buyers and sellers, ensures transparency, and reduces the chance of fraud.
With growing
trust in digital transactions and increasing NRI involvement in Indian
property, escrow is quickly becoming the go-to method for secure real estate
deals.
Before your
next property purchase, ask your seller or agent if they offer escrow-based
payment options — it might just be your best decision.
Frequently
Asked Questions (FAQs)
Is it
possible to open an escrow account in India?
Yes,
individuals and businesses can open an escrow account in India through banks or
licensed escrow service providers. These accounts are commonly used for real
estate, e-commerce, rental agreements, and large B2B transactions.
Are
escrow accounts legal in India?
Absolutely.
Escrow accounts are fully legal and regulated in India. They are commonly used
in compliance with guidelines from authorities like the Reserve Bank of India
(RBI), SEBI (for capital markets), and RERA (for real estate).
What
happens to the funds if one party doesn’t fulfill the agreement?
If one party
fails to meet the terms of the agreement, the escrow agent does not release the
funds. Instead, the amount remains secure until both sides resolve the dispute
or a legal direction is received.
Does
escrow protect the seller as well?
Yes, escrow
accounts protect both the buyer and the seller. For sellers, it guarantees that
the buyer has deposited the funds, which will be released once the agreed terms
(like project milestones or documentation) are completed.
Can
escrow be used for rental agreements?
Yes. Escrow
accounts are increasingly being used in rental arrangements to hold security
deposits. This ensures that neither party misuses the deposit, and it is
returned fairly as per the rental contract.
