What does "escrow" refer to in real estate transactions?

In real estate transactions, "escrow" refers to a neutral third-party arrangement where documents, funds, or other assets are held until specified conditions of the sale are met. This arrangement is crucial for ensuring that all parties fulfill their obligations before the transaction is finalized, thereby providing security and protection to both buyers and sellers.

An escrow agent manages this process, ensuring that funds are only released when all agreed-upon contract conditions, such as inspections, appraisals, or financing, have been satisfied. This helps to prevent any party from acting unilaterally against the terms of the agreement. By maintaining a neutral position, escrow minimizes the risk of fraud or misconduct during the transaction, ultimately fostering trust and efficiency in the real estate process.