Escrow

An arrangement where money is held by a neutral, regulated third party instead of by either side of a deal, and released only when agreed conditions are met.

Definition

An arrangement where money is held by a neutral, regulated third party instead of by either side of a deal, and released only when agreed conditions are met. In residential construction, escrow lets a homeowner's funds sit outside the builder's general account and be released on verified progress, rather than going straight into the builder's cashflow.

Why it matters

The default in Australian residential construction is the opposite of escrow: progress payments land in the builder's general operating account and mix with everything else the business owes. Escrow changes where the money sits during the build, which changes who is exposed if the builder fails. For owners it means the funds they have paid but not yet released are not lost in the builder's general account. For subcontractors and suppliers it means the money for the work can be committed before they start.

How it works in practice

Money is paid into an account held by a regulated third party rather than by the builder. The conditions for release are agreed up front, typically tied to verified progress on the build. When a condition is met, the funds release to the party entitled to them.

The holder of the funds cannot release them outside the agreed rules, and neither party to the deal can unilaterally take the money. That neutrality is the point: it removes the ability of one side to spend funds that are meant for a specific purpose.

On a BuildFair project, owner funds are held in regulated escrow with the banking partner Kobble and release on verified progress. The escrow is ringfenced per project, so the funds for one build can only be released for that build.

Common misconceptions

Escrow means the money is frozen

It isn't. Funds release as the agreed conditions are met. Escrow controls what the money can be used for and when, not whether it moves at all.

Escrow guarantees the project succeeds

It doesn't. Escrow changes where the funds sit and how they release. It does not fix scope disputes, defects, or a builder who is operationally in trouble for other reasons.