What does "escrow" mean in real estate?

In real estate, "escrow" refers to a financial arrangement in which funds are held by a neutral third party until specific conditions of a transaction have been met. This ensures that both the buyer and seller fulfill their obligations before the closing of the sale. The use of escrow protects all parties involved in the transaction. For instance, the buyer's funds are safeguarded until the seller provides the agreed-upon property title, while the seller can rest assured they will receive the funds once the title transfer is verified.

This concept is critical because it adds a layer of security and trust to real estate transactions. Buyers can commit to purchasing property knowing their money is protected, while sellers can feel confident that they will receive payment only after fulfilling their contractual obligations. The arrangement minimizes the risk of fraud and mismanagement, making it a standard practice in real estate transactions.