What’s an escrow account and what’s the point of it?

To avoid a situation where the buyer or seller is left without money and without property because the other party defaults, it is worth opening an escrow account. An escrow account is a tripartite agreement between the buyer, the seller, and the bank, which ensures a fair exchange of property and money.

The bank, as a neutral entity, keeps the buyer’s money until the seller has fulfilled its obligations. Neither party can individually withdraw the money credited to the escrow account.

The escrow account ensures the buyer that their money will be transferred to the seller only when the property has been successfully registered in the Land Register in the buyer’s name. However, if the seller does not submit the necessary documents to the Land Register or any previously unknown problems with the property are discovered, the buyer receives their money back.

The escrow account provides the seller with a guarantee that they will receive the money in full amount immediately after successful registration of the property in the Land Register.

Opening an escrow account is not mandatory in all cases. The buyer and seller usually agree on the need and inform their bank, which prepares the contract. Opening the account usually costs about 0.4% of the transaction amount, but sometimes banks offer special conditions to their customers. An escrow account works in a similar way to insurance, which provides a sense of security and protects against large unplanned losses.