What does 'escrow' mean in real estate?

The term 'escrow' in real estate refers to a financial arrangement where a third party holds funds or documents until specific conditions are satisfied. This process is essential in real estate transactions as it provides a safeguard for both buyers and sellers. For instance, an escrow agent ensures that the buyer's deposit is secure until all conditions of the sale, such as inspections or financing, are completed to the satisfaction of both parties. Once all agreed-upon conditions are fulfilled, the escrow agent releases the funds or documents to the appropriate parties, allowing the transaction to proceed smoothly.

This arrangement protects the interests of all parties involved, providing reassurance that the terms of the contract will be honored. The third-party escrow agent is typically a neutral party, such as an attorney, a title company, or an escrow company, which further ensures that the process is fair and unbiased.