Escrow is a legal arrangement whereby a neutral third party, called the escrow agent, holds an asset during the period in which the deal is being finalized by the other two parties.
In the United States escrow is most often associated with real estate transactions, although it can be used for any transaction involving the transfer of an asset in return for payment, such as a boat. When a buyer makes an offer on a boat and the seller accepts the offer the buyer is expected to back up the offer with some cash. Generally the offer to purchase states the buyer's intent to purchase the boat subject to certain conditions (e.g. successful survey, sea trial) being met. These conditions may also include the buyer being able to obtain a loan for the money to complete the purchase, the sale of other assets by the buyer (such as sale of a current boat in order to pay off an existing loan and obtain some of the money needed to complete this transaction). Conditions may also include the seller completing and paying for certain repairs or changes to the boat. When the conditions of the offer have been met the escrow agent gives the cash deposit to the seller. If the conditions are not met, the cash deposit is given back to the buyer. In the event the conditions are met but the buyer has a change of heart and decides not to go through with the deal, the cash deposit may still be given by the escrow agent to the seller as compensation for having pulled the boat off the market in anticipation of the person making the offer going ahead and completing the purchase. The escrow agent in this case acts as a neutral third party thereby avoiding possible lawsuits between the buyer and seller over who is to get the deposit if one side backs out of the deal.
In Florida it is a requirement for all Brokers selling craft above a certain size to be both licensed and provide Escrow services or some other type of bond which effectively protects client money. To obtain a licence a broker must first work under an existing licensed broker for a minimum of two years.