What does escrow refer to in real estate transactions?

In real estate transactions, escrow refers to a financial arrangement in which a neutral third party holds funds and documents on behalf of the parties involved in the transaction until specific conditions are met. This process is intended to provide security and assurance to both the buyer and seller, as it ensures that money is not released until all terms of the agreement are fulfilled.

For example, when purchasing a property, the buyer typically deposits the earnest money into an escrow account, which ensures that the funds are safely kept while other transaction conditions, such as inspections and financing, are completed. Once everything is in order, the escrow agent will release the funds to the seller and provide the buyer with the necessary documentation to finalize the purchase.

This arrangement enhances trust during the transaction process, ensuring that both parties fulfill their obligations before the funds are exchanged. The other options relate to different aspects of real estate, such as calculating property taxes, managing rental properties, or fees paid to agents, but they do not capture the essence of what escrow means in terms of holding and protecting funds and documents.