What is 'escrow' in real estate?

In real estate, escrow refers to an arrangement involving a neutral third party that temporarily holds funds and documents on behalf of the buyer and seller during a transaction. This ensures that both parties fulfill their obligations before the transaction is finalized. The escrow agent safeguards the buyer's deposit and pertinent documents, such as the purchase agreement, until all conditions of the sale are met. Once all terms are satisfied, the agent releases the funds to the seller and the documents are transferred to the buyer, ensuring a secure and equitable exchange without any undue advantage to either party.

This process helps to mitigate risks and provides a level of assurance to both the buyer and the seller, as neither party can access the funds or documents without mutual agreement. The use of escrow is a common practice in real estate transactions to protect both parties involved and is fundamental to the closing process.