In real estate, what does “escrow” refer to?

In real estate, escrow refers to a financial arrangement involving a third party that holds funds or documents on behalf of the buyer and seller during a transaction. The purpose of escrow is to manage the exchange securely, ensuring that both parties meet their obligations before officially completing the sale. For instance, a buyer's deposit is placed in escrow until all terms of the agreement are fulfilled, such as inspections, financing, and closing conditions. This process provides an additional layer of security and trust, as the third-party escrow agent is responsible for disbursing the funds or documents only when all contractual conditions are satisfied. This is crucial in real estate transactions to safeguard the interests of both the buyer and the seller.