What does the term "escrow" refer to in real estate?

In real estate, "escrow" refers to a neutral third party holding funds and documents until certain conditions of a transaction are met. This mechanism is crucial in ensuring that both buyers and sellers are protected during the transaction process. The escrow agent manages the funds related to the sale, including earnest money deposits, and ensures that all documents are in order and that the conditions of the sale are satisfied before the transfer of property occurs. By holding the money and documents in trust, the escrow agent facilitates a smooth closing process, minimizing the risk of fraud and ensuring that both parties fulfill their contractual obligations. This role is vital in establishing trust between the buyer and seller and ensuring that the transaction is executed in an orderly and legally compliant manner.