Escrow Account

Banking

An escrow account is a neutral third-party account that holds money or assets during a transaction until all conditions are fulfilled. Common in real estate (holds buyer's money until property documents are verified), M&A deals, and RERA-mandated project accounts.

In detail

Escrow in Indian real estate (RERA mandated):nDevelopers must deposit 70% of project funds received in an escrow accountnFunds can only be withdrawn for construction costs and land costsnProtects buyers if developer diverts funds -- money is ringfenced for the specific projectnnEscrow in startups/M&A: part of acquisition payment held in escrow for 12-24 months to cover post-acquisition claims.nnFor individuals: escrow services are available via banks for large property transactions -- provides safety when dealing with unknown parties.

Real-life example

🇮🇳 India example

Sunita buys an under-construction flat. Builder has RERA registration and a project escrow account. Her instalments go into this escrow. Even if the builder faces financial difficulties, the escrow funds (70% of collections) are ringfenced for construction. This is why RERA-registered projects are significantly safer than unregistered ones.

Frequently asked questions

Is RERA escrow mandatory for all real estate projects? ▼

Yes for projects requiring RERA registration (above 500 sq m land or 8 apartments). The developer must maintain a designated bank account and deposit minimum 70% of collections. Buyers should always check if the project has RERA registration and escrow compliance.