Escrow: What It Is, When It's Used, Types

What Is Escrow?

By Kristi Waterworth – Updated Dec 8, 2025 at 12:22 AM EST

Key Points

Escrow acts as a secure third party holding assets until transaction terms are met.
Used in low-trust, high-value situations like real estate and mergers.
In investing, escrow ensures adherence to time-locked stock compensation agreements.

There are many terms in the financial world that can apply to more than one situation, and escrow is one of those. Escrows are commonly used in the real estate industry, but it’s also an important concept for stock market investors to understand.

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People shaking hands over a desk in a bank. — Source: Getty Images

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Mergers and Acquisitions

The consolidation of companies through various transactions like mergers, acquisitions, or takeovers.

Escrows can be used in a wide variety of transactions, including transactions we might not initially think should necessitate an escrow, like the international transfer of goods. Regardless of the purpose, all escrows are based on a lack of trust over something of significant value. The most common, though, involve real estate, mergers and acquisitions, and stock-based compensation.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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