Escrow Account in Real Estate: How It Works for Homebuyers in India

An escrow account is an account where a neutral third party, usually a bank, holds money until the people dealing with each other meet agreed conditions. The buyer’s funds are released to the seller only once those conditions are met. Three players are involved: the buyer who deposits the money, the seller who is paid on delivery, and the escrow agent who releases the funds.

In property, the idea answers a simple worry: where does your booking money go? Under RERA, developers must deposit 70% of the funds received from buyers into an account with a scheduled bank, to be used only for land and construction costs of the same project. Many people call that an escrow account, though the law describes it differently, as explained below.

What is an escrow account and how does it work?

An escrow account protects both sides of a deal. The payer’s money is available, and the payee receives it only after completing the agreed obligation. The usual sequence:

The parties agree to terms and appoint an agent.

1. The buyer deposits the funds.
2. The seller delivers.
3. The agent verifies the conditions.
4. The funds are released.

The RERA project account: the escrow most buyers meet

Section 4(2)(l)(D) of RERA requires 70% of the amounts realised from allottees to be deposited into a separate bank account for the project. Developers also submit a declaration confirming compliance.

Money leaves the account only against progress. The promoter can withdraw in proportion to the percentage of completion of the project, and only after an engineer, an architect and a chartered accountant certify it. The chartered accountant must hold a certificate of practice, so the promoter’s own employees cannot issue it. The accounts are also audited by a chartered accountant after each financial year.

A note on the word “escrow”. Strictly, a RERA account is not escrow in the classic sense. A chartered accountant source citing Karnataka RERA’s directions says the account is self-regulated and self-maintained, and does not need banker or Authority approval for each withdrawal. The level of bank checking varies by state. In Maharashtra, the promoter submits the three certificates to the bank at every withdrawal.

Some states add a master account for all collections. Karnataka’s directions describe a master collection account for 100% of collections, from which 70% moves to the RERA account. Gujarat’s directions call the RERA account a designated account rather than a simple current account, to be opened before project registration, with a separate account for every project.

How a withdrawal is approved

Escrow in a direct or resale deal

Outside builder collections, escrow is something buyer and seller agree in a contract. They set the release conditions and pick a neutral agent to hold the funds. In India, banks are the most common agents, though licensed escrow service providers also exist, and fees vary by bank and transaction size. For regulated transactions, the agent has to be a scheduled commercial bank or an RBI-recognised entity.

It is useful where title documents or loan disbursal are still pending. RERA’s 70% rule applies to registered projects’ collections; for an ordinary sale, escrow is by agreement. Before proceeding with a resale purchase, buyers can review this property title verification checklist to understand the documents involved in checking ownership.

What a homebuyer can check

• Pay into the named account. Pay only into the account named in your builder-buyer agreement and the project’s RERA registration. Do not accept requests to pay elsewhere or in cash.
• Look up the project on your state RERA site. Haryana RERA’s project pages carry quarterly chartered accountant certificates on withdrawals from the separate account.
• Ask for the latest certificate if your state portal does not post one.
• Read the annual audit, where your state authority publishes it.

What the safeguard does not do

The account controls how project money is spent. It does not by itself guarantee delivery dates or construction quality, which are covered by other RERA remedies. That is a reasonable reading of the rule, not an official statement. A delayed project can still have a compliant account. State forms and directions differ, so check your state authority for the exact format.