In real estate transactions, what does the term "escrow" refer to?

In real estate transactions, the term "escrow" specifically refers to the holding of funds or documents by a third party until certain conditions are met. This process is crucial because it provides protection for both the buyer and the seller during the transaction. The escrow agent is responsible for ensuring that the terms of the purchase agreement are fulfilled before the final exchange of ownership or funds takes place.

For example, the buyer's funds are held in escrow until inspections are completed, financing is secured, and all other necessary terms of the sale are satisfied. Only after these conditions are met does the escrow agent release the funds to the seller and the title documents to the buyer. This arrangement minimizes the risk of fraud and ensures that both parties adhere to the terms of the agreement.