Definition
A neutral third-party arrangement where funds or documents are held pending transaction completion. Escrow protects both buyers and sellers by ensuring neither gains unfair advantage.
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Escrow holds earnest money, down payment, and sale documents until all conditions are met and both parties have satisfied all contingencies. The escrow agent ensures both parties comply with the purchase agreement before disbursing funds. It's a critical safeguard for both buyer and seller.
Pro Tip
Ensure you understand how escrow funds are held and when they will be released.
Example
The title company holds your $8,000 earnest money in escrow until closing, then applies it to your down payment. They also hold the deed until final payment.