What does "escrow" mean in real estate transactions?

In real estate transactions, "escrow" refers to the financial mechanism where a neutral third party holds funds, documents, or both until certain conditions agreed upon by the buyer and seller are satisfied. This process protects both parties by ensuring that the funds will only be released once all specified terms—such as property inspections, title searches, or financing—are completed satisfactorily.

This arrangement minimizes risk, as it ensures that buyer and seller commitments are fulfilled before any money changes hands, making it a crucial part of many real estate transactions. The third-party escrow agent is responsible for overseeing the escrow process, ensuring that both sides of the deal adhere to the agreed-upon conditions, which helps to protect the interests of all parties involved in the transaction.