In real estate transactions, what does "escrow" refer to?

In real estate transactions, "escrow" refers to the role of a neutral third-party that holds funds and documents until certain conditions of the transaction are met. The escrow agent acts as an intermediary, ensuring that both the buyer and seller adhere to the terms of the contract before the sale is finalized. This process provides security for both parties; for instance, the buyer's funds are safeguarded until the seller fulfills their obligations, such as transferring the title to the property.

The escrow process typically involves collecting the buyer's earnest money deposit and the final purchase funds, as well as important documents like the deed and other legal paperwork. Only once all conditions are satisfied does the escrow agent release the funds to the seller and the documents to the buyer, which helps protect both parties in the transaction.

This explanation clarifies the function of "escrow" in real estate, outlining the importance of a neutral third-party in ensuring a fair and secure transaction for all involved.