I have had escrow explained to me three times just now by three different people and I still don’t quite get it.
In: Economics
One of the other 5-year-olds at the playground, Billy, wants to sell his baseball card for $1. You want to buy that card.
You don’t know Billy that well, and you’re afraid Billy might take your money and run away without giving you the card.
Billy doesn’t know you that well, and Billy’s afraid you might take his card and run away without giving him the money.
It sounds like you might be stuck, and unable to make a deal, because you don’t trust each other.
But, it turns out that you and Billy are both good friends with Ed. Since you both trust Ed, you make an arrangement with Ed that works like this:
– You give Ed $1.05.
– Billy gives you the card.
– Ed gives Billy $1.00.
Billy’s happy since he doesn’t give up his card until Ed has the money. You’re happy since Ed won’t give up control of the money until you have the card. Ed’s happy because he got paid $0.05 for being a guy that everybody trusts.
Ed is providing an escrow service. While Ed’s holding onto the $1, it’s said that “the money is in escrow.”
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