Escrow
A neutral third-party account that holds funds and documents during a real estate transaction.
Definition
Escrow is a legal arrangement in which a neutral third party (the escrow company, title company, or attorney) holds funds, documents, and other assets during a transaction until all conditions of a contract are met. At closing, escrow disburses funds to the appropriate parties and records the deed transfer.
In real estate, escrow serves two main functions: (1) during the purchase transaction, it holds earnest money and manages the closing; (2) ongoing — for financed properties, the lender typically collects monthly property tax and insurance payments into an escrow account and pays those bills directly on the borrower's behalf.
Escrow protects all parties. The seller knows the buyer has committed funds; the buyer knows the money won't be released until the deed is delivered. Understanding escrow timelines and what triggers the release of funds is essential for investors managing multiple deals simultaneously.
Related Terms
Earnest Money
A deposit paid by the buyer to demonstrate serious intent — held in escrow until closing.
Title
Legal ownership rights to a property — the bundle of rights that come with owning real estate.
Closing Costs
Fees and expenses paid at settlement when a real estate transaction is finalized.
Purchase Agreement
The legal contract between buyer and seller that outlines the terms of a real estate transaction.