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

The term "escrow" in residential real estate transactions refers to a temporary holding account for funds and documents. When a real estate transaction is in progress, various parties involved, such as buyers, sellers, and lenders, may need to deposit money or essential documents for safekeeping until certain conditions are met for the transaction to be completed. This ensures that all parties act in good faith and adhere to the terms of the agreement.

In an escrow arrangement, a neutral third party, known as the escrow agent, manages these funds and documents to facilitate a smooth closing process. The use of escrow helps protect the interests of everyone involved by ensuring that no money changes hands and no documents are released until agreed-upon conditions are fulfilled, providing a layer of security against potential disputes.

Other terms, such as a legal document for closing, a type of mortgage, or a real estate appraisal method, do not accurately define escrow, as they pertain to different aspects of the real estate transaction process.