In real estate, what does the term "escrow" refer to?

The term "escrow" in real estate specifically refers to a neutral third party holding funds and documents during a transaction. In real estate transactions, escrow provides a safeguard for both the buyer and the seller, ensuring that all aspects of the deal are honored before the transfer of ownership occurs.

When a buyer and seller enter into a purchase agreement, they often use an escrow service to hold the buyer's earnest money deposit, and potentially other funds, until all conditions of the sale are met. This arrangement helps to protect both parties; the buyer knows that their money is secure and will only be released under agreed-upon conditions, and the seller is assured that the buyer is financially committed to the transaction.

The escrow process also typically involves the collection and disbursement of paperwork necessary to complete the sale, such as title documents, loan documents, and any other items required to finalize the transaction. This neutral third-party involvement is critical in maintaining trust and facilitating smooth real estate transactions.