To implement a traditional escrow you need an escrow agent and an escrow agreement, as you rightly note. In the event of a dispute, the escrow just holds onto the money until the question is resolved in arbitration or litigation.

Expenses involved is such a process include legal fees to draft and negotiate the agreement; paying the escrow agent for their bother; paying for litigation in the event of a dispute.

Escrows can be implemented on a blockchain as well. If the use case is suitable, you can save a lot of money and hassle! And if settlement is on-chain and is indisputable, you might not even need any escrow at all.