In real estate transactions, what does “escrow” most commonly refer to?

In real estate transactions, the term “escrow” most commonly refers to a temporary holding account for funds. Escrow is a financial arrangement where a neutral third party holds and manages the funds and documents related to a real estate transaction until specific conditions are met. This arrangement helps ensure that both the buyer and seller adhere to the terms agreed upon in the contract.

During the escrow process, the buyer typically deposits earnest money into the escrow account, which signifies their good faith in the transaction. The funds remain in escrow while both parties fulfill their obligations, such as the buyer securing financing and the seller completing any necessary repairs. Once all conditions are satisfied and the transaction is ready to close, the escrow holder releases the funds to the seller and ensures that the title is transferred to the buyer.

This process provides security for both parties, as it mitigates risks associated with direct transactions and ensures that neither party can access the funds or assets until the agreed-upon terms are fulfilled.