What does the term "escrow" refer to in residential real estate transactions?

In residential real estate transactions, the term "escrow" refers specifically to a financial arrangement where a neutral third party holds funds or documents on behalf of the buyer and seller until certain predetermined conditions are met. This process provides a layer of security for both parties involved in the transaction. For example, when a buyer makes an offer on a home, they may deposit earnest money into escrow to show their intent to purchase. This money is held until the closing of the sale occurs, ensuring that the seller will receive the payment and that the buyer's interests are protected during the process.

This arrangement is vital in real estate to facilitate trust between involved parties, as it helps assure the buyer that their deposit will not be released until their conditions (such as satisfactory inspection results or successful loan approval) are fulfilled, while also ensuring the seller that their property will not be taken off the market without commitment.

The other options mentioned do not accurately define escrow. Financing options pertain to how funds are sourced for purchase, a property history summary relates to title and ownership but does not involve holding funds, and an agreement outlining terms refers to the purchase contract rather than the escrow process. Each of these plays a different role in real estate transactions but does not capture the essence of what