Escrow is a legal arrangement in which a third party temporarily holds a sum of money or property until a particular condition has been met, such as the fulfillment of a purchase agreement. It is designed to protect both the buyer and the seller in a real estate transaction.
Escrow is a large part of the homebuying process. It happens when a third party holds something of value during the transaction. Most often, the “value” the third party holds onto is the buyer’s earnest money check. When the transaction is complete, usually at closing, the third party will release those funds to the seller.