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

The term "escrow" in real estate transactions specifically refers to an account where funds are held by a neutral third party until certain conditions of the transaction are satisfied. This process helps to ensure that all aspects of the transaction are completed as agreed upon by both the buyer and the seller. For example, once the buyer places their deposit into the escrow account, those funds will remain there until the closing conditions have been met, such as the completion of inspections, repairs, or other agreed-upon criteria. Once these conditions are fulfilled, the escrow holder will release the funds to the seller.

By using escrow, both parties are protected; the buyer knows their funds are secure, and the seller can feel confident that they will receive the payment once all obligations are fulfilled.

In contrast, an agreement between the buyer and seller involves the negotiation and terms of the sale, not the mechanism of fund handling. Mortgage insurance pertains to a type of insurance that protects lenders, usually used in certain types of loan products, rather than the management of funds during the transaction. A property deed is a legal document that conveys property ownership and is separate from the escrow process itself.