The formation, stability and CO adsorption properties of PdAg/Pd(111) surface alloys were investigated by X-ray photoelectron spectroscopy (XPS) and by adsorption of CO probe molecules, which was characterized by temperature-programmed desorption (TPD) and high resolution electron energy loss spectroscopy (HREELS). The PdAg/Pd(111) surface alloys were prepared by annealing (partly) Ag film covered Pd(111) surfaces, where the Ag films were deposited at room temperature. Surface alloy formation leads to a modification of the electronic properties, evidenced by core-level shifts (CLSs) of both the Pd(3d) and Ag(3d) signal, with the extent of the CLSs depending on both initial Ag coverage and annealing temperature. The role of Ag pre-coverage and annealing temperature on surface alloy formation is elucidated. For a monolayer Ag covered Pd(111) surface, surface alloy formation starts at ∼450K, and the resulting surface alloy is stable upon annealing at temperatures between 600 and 800K. CO TPD and HREELS measurements demonstrate that at 120K CO is exclusively adsorbed on Pd surface atoms/Pd sites of the bimetallic surfaces, and that the CO adsorption behavior is dominated by geometric ensemble effects, with adsorption on threefold hollow Pd 3 sites being more stable than on Pd 2 bridge sites and finally Pd 1 a-top sites.