What is the definition of "escrow" in a real estate transaction?

In a real estate transaction, "escrow" refers specifically to a neutral third-party account or arrangement through which funds and documents are held until specific conditions are met. This process ensures that both the buyer and seller fulfill their contractual obligations before the transaction is finalized. The escrow agent oversees the process, ensuring that the buyer's funds are secured and only released when both parties have met the necessary conditions, such as the completion of inspections or the clearing of title.

The concept of escrow helps to protect all parties involved in a real estate deal, providing a level of security and trust as the transaction progresses. It serves as a safeguard against potential disputes by managing the transfer of both money and documents, such as deeds and titles, ensuring they are conveyed properly at the right time. This function is especially critical in real estate, where large sums of money and significant legal paperwork are at stake.