What does the term escrow account refer to?

The term escrow account refers to an account held by a third party to manage funds for a real estate transaction. In real estate, an escrow account is established to temporarily hold funds and documents related to the transaction until certain conditions are met. This process ensures that both the buyer and seller fulfill their obligations before the transaction is finalized.

For example, during the buying process, the buyer usually deposits earnest money into the escrow account. This money demonstrates the buyer's commitment to the purchase and is held securely until all contract conditions are satisfied, at which point it is applied to the purchase or disbursed according to the terms of the agreement. An escrow account protects all parties involved and helps facilitate a smooth transaction by ensuring that funds are only released when specific requirements are completed.