What does the term "escrow" refer to in real estate?

In real estate, "escrow" refers specifically to a third-party service that holds funds and documents until all conditions of a transaction are fulfilled. This process ensures that both parties in a real estate deal fulfill their obligations before the transfer of property ownership occurs. For instance, when a buyer and seller enter into an agreement, they may agree to place the purchase money into escrow, along with relevant documents like the title deed. The escrow agent then manages these assets safely, releasing them only when all contractual conditions—such as inspections, repairs, and financing—are satisfied.

This practice adds a layer of security and trust to the transaction, as it helps prevent either party from being at risk of losing their funds or documents before the agreement is fully executed. The role of the escrow agent is critical, as they ensure that the transaction is executed according to the agreed-upon terms, providing a neutral party that facilitates the process.