Question 1

How much does escrow cost?

Accepted Answer

Escrow fees typically run 1–2% of the transaction amount, paid by one or both parties. For a $10,000 deal, that's $100–$200. Real estate escrow is pricier — $500–$2,000+. For freelance platforms like Escrow.com, fees start around 3.25% for smaller amounts. It's insurance against non-payment, and it's usually worth it.

Question 2

Who pays for escrow?

Accepted Answer

The contract should specify this. In real estate, it's often split between buyer and seller. In freelance contracts, the client usually pays. In M&A deals, the buyer typically covers escrow costs. If the contract is silent, negotiate — don't assume you're off the hook.

Question 3

What happens if there's a dispute during escrow?

Accepted Answer

The escrow agent holds the funds until the dispute is resolved — through negotiation, mediation, arbitration, or court. The escrow agent is neutral and doesn't take sides. Good escrow agreements include a dispute resolution process that tells the agent what to do when the parties disagree.

Question 4

Is escrow necessary for freelance work?

Accepted Answer

For larger projects ($5,000+), it's a smart move. For smaller gigs, milestone-based payments can serve a similar function without escrow fees. If you're working with a new client you haven't built trust with, escrow protects both of you. If you've worked together for years, you probably don't need it.

Question 5

Can you use escrow for software source code?

Accepted Answer

Yes — this is called a 'source code escrow.' The source code is deposited with an escrow agent and released to the licensee if the software company goes bankrupt, stops maintaining the product, or breaches the license agreement. It's common in enterprise software deals where the customer depends on the code.

Escrow

Definition

In Practice

Common in these contract types

Frequently asked questions about escrow

Create a contract with proper escrow clauses