What does "escrow" refer to in a real estate transaction?

In a real estate transaction, "escrow" refers to a neutral third-party account that holds funds and documents until certain specified conditions are met. This process is critical in ensuring that both parties—the buyer and the seller—fulfill their obligations before the transaction is finalized.

In escrow, funds such as the buyer’s earnest money deposit and other important documents, like the finalized sale contract, are securely held by the escrow agent. This ensures that no funds or documents are released until all contractual conditions, such as inspections, appraisals, or financing, have been satisfactorily completed. This arrangement protects both parties and serves as a safeguard against any potential issues that may arise during the transaction.

The other choices represent different aspects of real estate transactions but do not define escrow correctly. A legal contract outlining the terms between the buyer and seller is indeed essential, but it does not encompass the function of holding funds and documents, which escrow specifically does. The final step in closing a real estate transaction refers to the conclusion of the process where ownership is officially transferred, rather than the ongoing mechanism that oversees the transaction prior to that point. Lastly, a tool used for evaluating property values pertains to appraisal methods, but it does not relate to the escrow process. The unique role