The third-party definition refers to an individual or entity in a transaction but is not the buyer or the seller. Usually, a third party has some role in the transaction. They do not have the same level of interest in the transaction, but they can receive some form of financial benefit from the transaction. Whether they are working on the seller’s or buyer’s behalf, they can also connect the two principal parties involved in the transaction by making one or the other aware of the possible business opportunity.
A third party can also refer to an outside individual or entity contracted by a company to provide certain services for clients in the business world. Being often used by large companies that invest in middle or back-office infrastructure, they simplify their work. This creates an inequity regarding smaller firms that don’t manage to break through because they can not outsource the extra services provided by larger companies through third-party entities. Those that do manage to outsource these functions gain a more significant share of the marketplace.
These third-party entities maximize efficiency, reduce operational risks and limit errors as they focus on one thing. If a hotel chain needs a human resource department but does not have one and doesn’t focus on that sector, contracting an HR firm will cover their needs, increase service quality, and ensure a more satisfied workforce. The result can be seen in proactivity, increased client satisfaction due to a more satisfied workforce.
The real estate industry has many ways of working or including third-party entities in a transaction. The simplest example would be a Texas real estate agent connecting a Texas resident considering moving to Florida with a Florida real estate agent or simply telling their Texas client of a listing from Florida.
Another example would be real estate escrow companies that act as third-party entities by ensuring that all the documents, deeds, and funds related to the real estate transaction are organized and ready for closing. The lender deposits the funds on behalf of the buyer and seller in an account, after which the escrow officer acts in accordance with the directions received from the lender, buyer, and seller. The escrow officer efficiently handles the funds and documentation and makes sure that everything goes according to the needs of the seller, buyer, and lender.