Imagine you’ve finally found the perfect TV you’ve been searching for. You reach out to the seller, and everything checks out. The only issue? It’s an online transaction, and you can’t inspect the product before sending your money. In these instances, you can take up escrow for online transactions.
Instead of crossing your fingers or letting go of buying it, trust a neutral third party. While escrow is typically used in real estate transactions, it can also be applied to online sales to protect both buyers and sellers in high-value transactions. With the rise of online markets, it’s especially helpful in avoiding fraud and scams. Using escrow for something smaller, like a TV, might seem like too much work, but it’s done differently when it comes to online sales.
Step-by-Step Guide to Escrow in Online Sales vs Real Estate
1. Agreement
In online sales, you have to agree with the seller on using escrow and the exact site you’ll be using. Make sure to use a reputable online escrow service to avoid scams. Aside from this, the specific details of the product and the timeline for shipping and approval need to be established early on.
In real estate, the buyer and seller have to sign a purchase agreement. Unlike in online escrow, they also have to reach out to a real estate agent who will help facilitate the process and an escrow service that will hold the funds until the sale goes through.
2. Exchange through Escrow
Once you agree on a service, it’s your go signal to send your total payment to the escrow service. The seller will then ship the product to you. During this period, it’s just a matter of waiting to get your item before you can move forward. The escrow for online transactions will securely hold your funds until they are ready for payment.
In real estate, the buyer doesn’t pay the full down payment up front. They will first provide their earnest money to prove their intention of buying the property. This is the money a buyer puts down to show their ‘good faith’ in completing the transaction. They will only complete the down payment after the deal is finalized. Throughout the process, they will also secure a mortgage or other financing.
3. Inspection
When the product finally makes it to your doorstep, the seller doesn’t get your money right away. It’s your time to check that it’s just as good as it looked online. Check for damages, missing parts, and proper functionality. If all is good, proceed. If not, bring it up with the seller and the escrow for online markets until you can work out a dispute resolution or cancel the deal.
In real estate, the inspection part is more complex. Instead of just checking for damages, other factors, like electricity and structural stability, need to be considered. There’s also the appraisal, which ensures that the property’s value matches the price it’s selling for.
4. Approval and Release
Once you approve the delivered product, the escrow service releases your payment to the seller. Online sales, even those involving escrow, are relatively simple and quick. In real estate, the process is slightly longer than approving the house and paying the seller. Different documents, such as property transfer, need to be notarized, signed, and approved over months.
5. Maintaining an account
In escrow for online sales, there are no further follow-ups after the transaction is completed. After the product makes it to the buyer and the seller receives the money, the buyer’s need for an escrow service disappears.
On the other hand, real estate can require the buyer to have an escrow account to pay for property taxes and other expenses that come with the property. This account needs to be maintained and have funds available for payments on a continuous basis.
Main Differences
- Involved Parties: Online sales involve the buyer, seller, and escrow service, while real estate transactions also involve other legal entities like real estate agents or attorneys.
- Duration of Transaction: Online transactions are quick and can be completed within days or a week. Real estate transactions can take weeks or months.
- Mode: Online transactions are done remotely, with the involved parties not needing to meet in person. While technology has allowed some parts of real estate transactions to be done online, certain signings require a physical signature.
Simplify your transactions with New Era Escrow. We deliver transparent and reliable escrow services that you can count on every step of the way. Trust us to handle your next big move and experience efficient transactions. Let us take the stress out of the process so you can focus on what matters most—making your dream purchases a reality.
Key Takeaways
- Although escrow is commonly used in real estate transactions, it can also be used in online sales to protect buyers and sellers from scams.
- The use of escrow differs in terms of payment, inspection, release of funds, and required maintenance after the transaction.
- While using escrow for online transactions may seem complex, given how it is used in real estate transactions, it can actually be a quick and simple process.
References
- Panaino, P. (2021, September 23). Digital Escrow: A new way to facilitate commerce. Standard Chartered. https://www.sc.com/en/news/corporate-investment-banking/digital-escrow-new-ways-facilitating-commerce/
- Segal, T. (2025, January 12). Understanding the Escrow Process and Requirements. Investopedia. https://www.investopedia.com/mortgage/escrow-process-requirements/.
- Siddiqui, P. (2024, December 20). Forbes. https://www.forbes.com/councils/forbesbusinesscouncil/2024/12/20/digital-escrow-industry-challenges-opportunities-and-the-path-forward/
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