How is escrow defined in real estate transactions?

In real estate transactions, escrow is defined as a financial arrangement that involves a neutral third party who holds funds, documents, or other assets on behalf of the buyer and seller. This arrangement ensures that both parties fulfill their obligations before the transaction is completed. For example, the buyer's earnest money deposit may be held in escrow until the closing process, providing security for both the purchaser and the seller.

The role of the escrow agent is crucial, as they ensure that all conditions of the sale are met, including inspections, title searches, and financing. Once all conditions are satisfied, the escrow agent facilitates the closing of the transaction, disbursing funds and transferring title, which fosters trust between the parties involved.

The other options refer to different aspects of real estate and finance but do not accurately define the escrow process. Calculating property taxes pertains more to tax assessments, while a type of loan predicated on equity relates to financing methods. A legal document for property transfer may refer to contracts or deeds, but escrow itself is not a document; it is a process and arrangement that occurs during the transaction.