What does "escrow" mean in real estate?

In real estate, "escrow" refers to a financial arrangement involving a neutral third party who holds funds or documents until certain conditions are met, typically during the buying and selling process. This arrangement is crucial for ensuring that all parties fulfill their obligations before the transaction is finalized.

For example, when a buyer makes an offer on a property, the earnest money deposit is often held in escrow. The escrow agent manages the funds, documents, and instructions in accordance with the contract until all requirements—such as inspections, financing, and legal checks—are satisfied. Once these conditions are met, the escrow agent will then transfer the funds to the seller and the title of the property to the buyer, ensuring a secure and efficient transaction.

The other options do not accurately capture the essence of escrow. A temporary loan would imply financing, real estate insurance pertains to risk management, and a sales contract specifically outlines the terms of the property transaction rather than describing the holding arrangement involved in escrow.