An escrow service is a licensed, regulated company that collects, holds, and sends a buyer's money to a seller. The transaction must follow the instructions agreed on by both the buyer and seller.
In an escrow transaction, the buyer pays an escrow company the amount of money the seller requires for the merchandise and shipping. The escrow holds the money until the seller ships the merchandise and the buyer confirms she has received it. Then the escrow company pays the seller.
Yahoo! Auctions has termed using an escrow service as “probably the safest way to process a transaction between a buyer and a seller who do not know each other.” That assumes, of course, that you are using a legitimate escrow service and not one of the phony services that cyber-criminals sometimes set up to steal information, merchandise, and money.
Both Yahoo! and eBay mention Escrow.com prominently in their recommendations for online auction buyers. Escrow.com is a licensed and accredited escrow company audited regularly for compliance by the California Department of Corporations.
Escrow services are generally employed as go-betweens in auctions involving high-priced items where there is greater danger of seller fraud and buyer fraud. For example, eBay defines “high-priced” as $500 or more. Escrow.com does not set any price minimums but states on its Web site: “Escrow is well-suited for items purchased on auction sites, automobiles, motorcycles, domain names, jewelry, specialized computer equipment and other high-ticket items.” Some buyers, however, use escrow services for items costing less than $100, a tactic that often does not make sellers happy.
Escrow: Time Versus Money
Many sellers are not fond of escrow services because of the time it takes to receive their money after they ship the merchandise. The wait can often be a month or longer. Both the seller and the buyer must report to the escrow company that the transaction is completed before payment can be issued.
The buyer gets to inspect the merchandise and raise a dispute, if necessary, before the seller is paid. The seller has to cool his heels for a while but knows that the money is available and the payment will be good.
The escrow process generally requires five steps:
The buyer and seller agree on the terms of their transaction. This includes reaching consensus on the description of the merchandise, the sales price, the shipping details, and the number of days that the buyer can inspect the merchandise. They also must agree on whether the buyer or seller pays the escrow fees. Sometimes, buyer and seller split the escrow fee, so that each pays half.
The buyer pays the agreed-upon amount for the merchandise, shipping, and escrow service to the escrow company. Different escrow companies accept different forms of payment, but the choices typically include paying by check, money order, wire transfer, credit card, or debit card. The processing time for each payment method will figure into how long the seller must wait for his money and how long the buyer must wait for his merchandise.
The seller sends the merchandise after the escrow company authorizes the shipment. The seller also sends shipment-tracking information to the escrow company. The escrow company knows when the buyer is supposed to receive the merchandise and will contact the buyer to confirm its arrival.
The buyer's inspection period begins. During this time, the buyer can accept or reject the merchandise. If the buyer rejects the shipment, she must arrange to send the merchandise back to the seller at her expense. She may also be responsible for the escrow fees. The escrow company issues a refund only after the seller confirms the return of his merchandise.
If the buyer accepts the merchandise or the buyer's inspection period expires without protest, the escrow company pays the seller, and the process is completed.
Escrow Dispute Resolution
On its Web site, Escrow.com spells out what happens if a buyer and seller cannot resolve a dispute within sixty days. The matter goes to dispute resolution, “an arbitration process administered by the American Arbitration Association in accordance with the provisions of its Commercial Arbitration Rules.”
The nonprofit American Arbitration Association (AAA) describes itself as “the world's leading provider of conflict management and dispute resolution” and states that it works to try to resolve “a wide range of disputes through mediation, arbitration, elections and other out-of-court settlement procedures.” Disputes for arbitration or mediation can be filed through local or regional AAA offices or through the AAA's Web site (
Beware of fake online escrow services. Cyber-thieves have created some sophisticated-looking temporary sites that do nothing except steal money and personal information from a few sellers and buyers, and then vanish from the Web. Use only the escrow services recommended by the auction site.
For example, eBay recommends using only Escrow.com for transactions in the United States and United Kingdom. For other areas of the world, eBay recommends the following:
France, Netherlands, and Belgium:
Italy and Spain:
If a seller refuses to use Escrow.com (or its overseas affiliates) and demands that you use another escrow site, consider this a bright red flag with spotlights. Online fraud may be just one more click away. Don't complete the transaction, no matter how much you want the item. Report the seller to eBay immediately.