What does "escrow" mean in a real estate transaction?

In a real estate transaction, "escrow" refers to a third-party service that holds funds or documents until the transaction is finalized. This process involves a neutral intermediary who manages the transfer of necessary documents and funds, ensuring all terms of the purchase agreement are met before the closing of the sale. The escrow holder safeguards the buyer's deposit and other funds, delivering them to the seller only when specific conditions have been satisfied.

This approach adds a layer of security for both parties involved in the transaction. For the buyer, it ensures that their money is not released until they receive clear title to the property, while for the seller, it provides reassurance that the buyer is financially committed since the funds are already in escrow. By involving a third party, escrow helps to minimize risks and establish trust, which is essential in real estate transactions.

The other choices, such as methods of financing or types of loans, pertain to different aspects of real estate transactions but do not capture the specific definition of escrow, which focuses on the neutral holding of funds and documents. Additionally, while a signed real estate contract signifies the terms agreed upon by the buyer and seller, it does not encompass the duties and functions of escrow in the transaction process.