Selling a Car Using an Escrow Account

Selling your car using an escrow service ensures meeting all parts of the sales contract.
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Buying or selling a used car among private parties carries risks for all sides. Hiring an escrow company to help handle the sale protects both buyer and seller in transferring the auto title. The escrow process helps reduce the risk. An escrow service provides a neutral third party to a sale. Escrow firms traditionally assist in home sales, but any sale can use an escrow service.


The escrow officer works with buyers and sellers to follow the sales agreement to transfer money in exchange for goods during a sale. Escrow creates a "safe environment where both the buyer and seller feel comfortable exchanging money and goods knowing they can't be taken advantage of," according to the John North, CEO and President of the Better Business Bureau in a 2008 article. Either the buyer or seller, or both parties, pay the nominal fees for the escrow services. Escrow fees are based on the contracted price of the car.


Traditional escrow services require a sales contract to outline the terms of the agreement. The escrow officer follows the terms of the agreement to close the sale. Some online escrow companies simplify the process and require only both buyer and seller agree that the terms of the sales contract have been met. Once that happens, the money is released to the seller.


Sales typically involve a deposit from the buyer to show the seller good faith in the agreement. The escrow officer accepts a deposit on the car on behalf of the buyer and holds the money until the contract terms are met. The seller typically asks for a large enough deposit to take the car off the market while the buyer does any inspections. Occasionally, the buyer accepts multiple offers and submits the backup purchase offers on the car to the escrow agent. If the first offer falls through, escrow returns the first deposit and accepts a new deposit and contract from the backup buyer.


Conscientious car buyers typically want to have the car inspected by a mechanic make sure the car operates properly. If the buyer suspects body repairs, the contract might include a statement to allow the buyer to have the car examined by a body shop for damage and quality of the repairs. Contracts generally list a specific number of days for buyers to complete all inspections.

Fraud Potential

The key to avoiding auto escrow fraud is to know your escrow company. Fraudulent companies set up escrow services using the Internet and claim an association with a major online auto sales website. Escrow agents require state licenses, and most states require attorneys or private companies operating as escrow firms to also hold a license to provide the services. Confirming the escrow office, and the officer, have licenses to operate in the state of the sale protect both buyer and seller from escrow fraud.

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