What is an "escrow" in real estate transactions?

An escrow in real estate transactions refers to a financial arrangement where a neutral third party holds funds on behalf of the buyer and seller until specific contractual conditions are met. This system is crucial for ensuring that both parties uphold their responsibilities in the transaction. For example, the buyer may deposit earnest money into escrow to demonstrate seriousness, while the seller may need to fulfill conditions such as completing required repairs or providing a clear title. Once all stipulated conditions are satisfied, the escrow agent releases the funds to the seller, ensuring a secure and fair exchange.

Understanding this concept is essential for anyone involved in real estate, as it protects the interests of both parties and facilitates a smooth transaction process. The other options provided do not accurately capture the definition of escrow within the context of real estate transactions.