What does "Escrow" refer to in real estate transactions?

In real estate transactions, "escrow" refers to a financial arrangement where a neutral third party holds funds or legal documents on behalf of the buyer and seller until the conditions of the transaction are met. This process helps ensure that both parties fulfill their obligations as laid out in the purchase agreement.

The purpose of escrow is to provide security to both the buyer and the seller. For instance, the buyer can feel confident that the money will not be released to the seller until they deliver the title to the property, while the seller can trust that the buyer's funds are secured and will be available at the appropriate time.

Utilizing escrow minimizes risks associated with real estate transactions, such as the potential for fraud, by ensuring that all necessary steps are completed before the actual transfer of ownership or funds takes place. The presence of an escrow agent or company adds an additional layer of professionalism and oversight to the transaction.