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

In real estate transactions, "escrow" refers to an arrangement involving a third party who holds and manages funds or documents on behalf of the buyer and seller until specific conditions are met. This process is designed to ensure that all parties fulfill their obligations before the transaction is finalized. For example, the buyer deposits their earnest money into the escrow account, and the seller provides necessary documents, such as the property deed. The escrow agent holds these items until both parties have completed their responsibilities, at which point the transaction can be successfully concluded. This mechanism provides a layer of protection for both the buyer and seller, ensuring that the transaction proceeds smoothly and that funds and documents are safeguarded until all terms are met.

Other terms mentioned, such as an agreement to purchase property or a process of obtaining a mortgage, do not encompass the protective and managerial role that escrow plays in the transaction. Similarly, property insurance is completely unrelated to the escrow process.