What is the definition of "escrow" in real estate transactions?

The concept of "escrow" in real estate transactions refers specifically to a financial arrangement where a neutral third party temporarily holds funds, documents, or other valuables until all specified conditions of a sale or agreement are fulfilled. This process ensures that both the buyer and seller uphold their end of the transaction, providing a level of security for both parties involved. For example, in a real estate transaction, earnest money from the buyer is often held in escrow until the deal closes, at which point the funds are allocated accordingly.

This definition is foundational to the practice of real estate as it protects the interests of both buyers and sellers, mitigating risks associated with direct transfer of funds or documents without guarantees that all agreed-upon terms are satisfied. By relying on a third party to oversee these conditions, the escrow process fosters trust and ensures compliance with contractual obligations.