What does "escrow" refer to in real estate?

In real estate, "escrow" refers to a financial arrangement involving a third party that holds funds or documents on behalf of the buyer and seller until certain conditions are met. This arrangement helps ensure that both parties fulfill their obligations in the transaction, adding a layer of security and trust.

For instance, the buyer deposits their earnest money into an escrow account, where it is securely held until the completion of the sale. Once the sale terms are satisfied, the funds are released to the seller, reinforcing the idea that escrow provides a neutral space for managing funds related to the transaction. This process protects the interests of all involved, ensuring that no party has full control over the funds or documents until both sides have upheld their commitments.

Understanding the role of escrow can help real estate professionals navigate transactions smoothly, providing reassurance to clients that their investments are handled securely.