What does "escrow" refer to in a real estate transaction?

In a real estate transaction, "escrow" specifically refers to the process in which a neutral third party holds funds or important documents on behalf of the buyer and seller until certain conditions of the sale are fulfilled. This arrangement ensures that both parties meet their obligations as outlined in the purchase agreement before the transaction is completed. By having an escrow process in place, it mitigates risk for both the buyer and the seller, as the buyer’s deposit is protected and the seller knows that payment will only be released once agreed-upon conditions are satisfied.

This system of safeguarding money and documents is a crucial aspect in real estate transactions as it creates trust and security, allowing both parties to feel confident about proceeding with the sale. The role of escrow is pivotal in managing timelines and safeguarding interests until the deal is fully executed.