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

In a real estate transaction, "escrow" specifically refers to a neutral third party responsible for holding funds and documents until all conditions of the sale are satisfied. This process ensures that neither party has an unfair advantage during the transaction.

The escrow agent acts on behalf of both the buyer and seller, facilitating the transfer of the title and funds while making sure that all contractual obligations—such as inspections, repairs, and financing—are completed before the final transfer of ownership occurs. This system protects the interests of both parties and helps to create a smooth closing process.

Understanding the role of escrow is critical for successful real estate transactions, as it mitigates risks associated with property transfers, ensuring that both parties adhere to the agreed terms before ownership changes hands.