What does the term "escrow" imply in real estate transactions?

The term "escrow" in real estate transactions refers to an arrangement for third-party fund management. In this context, escrow is a neutral third-party service that holds funds, documents, and other necessary items on behalf of the buyer and seller until certain conditions of the transaction are fulfilled. This ensures that the interests of both parties are protected during the process, as the funds will only be released or disbursed according to the terms agreed upon in the contract.

For instance, once the buyer's funds are deposited in escrow, they remain there until all aspects of the sale, such as inspections and title searches, are completed satisfactorily. Only after these conditions are met will the funds be released to the seller, ensuring a smooth and fair transaction. This practice helps build trust between the parties involved and minimizes the risk of potential disputes related to payment and documentation in a real estate deal.