An escrow is an arrangement where part of the purchase price is held by an independent third party (usually a law firm or specialist escrow agent) for a defined period to secure the seller’s potential indemnity obligations or contingent payments. In Australian sub-$20M deals, escrow amounts typically range from 5% to 15% of the purchase price, with release periods of 12 to 24 months.
Escrow is generally more seller-favourable than holdback because the buyer cannot unilaterally withhold the funds; release is governed by the contract terms and the escrow agent’s instructions.