What does escrow mean in real estate?

In the context of real estate, escrow refers to a financial arrangement where a neutral third party holds and manages funds (and sometimes documents) on behalf of the parties involved in a transaction, typically the buyer and seller. This arrangement ensures that all conditions of the sale are met before the funds are released to the seller and the property title is transferred to the buyer.

The use of escrow protects all parties by ensuring that neither the buyer nor the seller can access the funds until the conditions laid out in the purchase agreement are fulfilled. For instance, this may involve confirming that all necessary inspections are completed, repairs are made, or that a title search has confirmed there are no liens against the property.

This process minimizes risk and promotes trust during the real estate transaction, making it a critical component in the buying and selling process. It is essential for real estate professionals and their clients to understand how escrow works, as it plays a significant role in the overall security and legality of property transactions.