In real estate transactions, what does the term "escrow" refer to?

The term "escrow" refers specifically to a process in real estate transactions where a neutral third-party account is used to hold funds and important documents until the conditions of the sale are fulfilled. This ensures that both the buyer and seller adhere to the terms agreed upon in the purchase contract. The escrow agent manages the funds and paperwork, which adds a level of security and protection for both parties involved.

In this context, when the buyer deposits earnest money or when a lender sends a loan amount, those funds are held in escrow until the transaction's conditions, such as inspections, financing, or title searches are complete. Once all stipulations are met, the escrow holder facilitates the closing process, releasing funds to the seller and providing the buyer with ownership of the property. This process ensures that neither party can access the funds or the property title until the transaction is fully executed.