Simplifying real estate: What is an escrow account and how does it work?

At some point in our lives, we’ve all dreamed about owning our own homes or even fantasised about buying a property.

And a majority of us first-time home buyers often opt to purchase off-plan as our first property purchase - not just because it is affordable but also because it’s easier to plan ahead and resell.

So, have you been thinking about purchasing an off-plan property? Then you must know what Escrow accounts are and how they can help you better with your property purchase.

As always, we’ve done the heavy lifting and provide you a seamless guide into everything you need to know…

First things first: What is an escrow account?

Picture a treasure chest with two keys. In that treasure chest you have placed your share of the amount for a down payment for the property you plan to buy. One key is yours, and the next you hand it to your real estate agent, and that chest is only opened once you have purchased the property from the off-plan developer - your agent will hand over the money, creating a fair trade.

It ensures that both parties in a transaction are protected and that the money is used for its intended purpose.

Although, it's important to note that in Dubai, developers who sell off-plan units and receive payments from buyers must follow Escrow Account laws. These laws require that money paid by buyers for any off-plan project must go into the developer's escrow account.

How can you set up an escrow account in Dubai?

Setting up anything comes easy in Dubai - same process follows for an escrow account too, although the developer must contact the registered authority to activate an escrow account for an off-plan property. Each off-plan project requires a separate account so ensure that’s set up first.

Here's how you can get started:

Step 1: Log in to the Oqood portal and click on the escrow account link.

Step 2: Choose the service you need and submit your application.

Step 3: The Trustee Account will review your application.

Step 4: The trustee will upload their findings through the escrow account system.

Step 5: The escrow account department will audit the application and either approve or reject it.

If approved, the system will be automatically updated.

Keep in mind:

• You only need the payment plan for the off-plan project.
• This process is only for developers opening escrow accounts in Dubai.

So, what are the benefits of an escrow account?

An escrow account offers several benefits for both buyers and developers, such as:

1. Buyers are protected: In an escrow account, the buyer’s funds are held in the escrow account until certain conditions are met, providing you with the financial security and reducing the risk of fraud or mismanagement.

2. It ensures transparency: Escrow accounts are one of the best ways to ensure transparency in real estate transactions as it ensures that funds are used only for their intended purposes, such as construction or project development - and avoid frauds.

3. Always compliant with regulations: Escrow accounts help developers comply with regulatory requirements and laws governing real estate transactions, enhancing trust and credibility in the market as money has to stay in the account and only be used for the intended purposes.

4. Risk mitigation: Escrow accounts mitigate the risk for both parties involved in the transaction by acting as there is always a neutral third party responsible for managing and disbursing funds according to the terms of the agreement.

Hope this guide helps!

If you are thinking about opening an escrow account, or are searching for an off-plan property - drop a line to our Head of Developer Sales; Fintan Flannelly!