In real estate transactions, what does 'escrow' mean?

The term 'escrow' refers specifically to a financial arrangement where a third party holds funds or documents on behalf of two or more parties involved in a transaction. This arrangement is designed to ensure that the transaction proceeds smoothly and that all parties fulfill their contractual obligations before the funds or property are transferred.

In a real estate context, escrow is often used during the closing process of a property sale. For instance, a buyer might place their deposit into an escrow account, where it is secured until all conditions of the sale are met, such as the buyer obtaining financing, the completion of inspections, or the seller fulfilling required disclosures. Only after all steps are validated and completed does the escrow agent release the funds to the seller.

This process provides a layer of security for both buyers and sellers, as it ensures that money is only transferred when the terms of the agreement have been satisfied. Thus, 'escrow' is fundamentally tied to the safe management of funds during transactions, which is why the correct answer accurately describes this crucial aspect of real estate dealings.