What is an "escrow" in real estate transactions?

In real estate transactions, escrow refers to a financial arrangement where a neutral third party holds and manages funds or documents on behalf of the buyer and seller until the terms of the agreement are fulfilled. This process ensures that both parties can trust that their interests are being safeguarded during the transaction, as neither party has full control over the funds or documents until specific conditions are met, such as completing necessary inspections, obtaining financing, or meeting other contractual conditions.

Escrow provides security and helps prevent fraud, as the funds are only released to the seller upon the fulfillment of all agreed-upon conditions in the transaction. This mechanism plays a vital role in ensuring the smooth execution of real estate deals, thus promoting confidence among all parties involved.