Escrow / holdback

Definition

Purchase money held at closing to cover claims that surface later.

Why It Matters

It is the practical security behind the reps and warranties on deals too small for the insurance products larger transactions use. When a rep breaks, recovery is a claim against money already set aside rather than a lawsuit chasing a seller who has retired on the proceeds, so the size and release timing of the holdback are worth negotiating up front.

In numbers: A 10% holdback on a $4M deal parks $400k with a neutral agent for 12 to 18 months; when a rep breaks, recovery is a claim against known money rather than a lawsuit against a retired seller.