What is escrow money used for in real estate transactions?

Escrow money serves a crucial role in real estate transactions by acting as funds held by a neutral third party. This arrangement ensures that the money is secure until all the terms of the deal have been fulfilled. For instance, in a property sale, escrow funds typically consist of earnest money submitted by the buyer, demonstrating their serious intent to purchase the property. These funds are kept in an escrow account and only released once both the buyer and seller have met agreed-upon contract conditions, such as inspections, repairs, or financing approvals.

In this context, escrow provides a layer of security and trust for all parties involved in the transaction. It mitigates the risk of either party failing to uphold their side of the agreement, as the funds are not disbursed until all contractual conditions are satisfied. This mechanism aims to protect both buyers and sellers and facilitate smoother and more reliable real estate transactions.