What does "escrow" mean in real estate transactions?

In real estate transactions, "escrow" refers to a financial arrangement in which a neutral third party holds funds or documents on behalf of the buyer and seller until all conditions of the sale are met. This arrangement provides security to both parties involved in the transaction. For example, the buyer's earnest money might be held in escrow until the seller fulfills their obligations, such as making repairs or providing necessary documentation.

Using escrow helps facilitate a smooth transaction process. It ensures that neither party can access the funds or documents without the other party's approval, thus protecting the interests of both the buyer and the seller. Once all terms and conditions outlined in the agreement are satisfied, the escrow agent releases the funds or documents to the appropriate party, completing the transaction.

The other options presented do not accurately define escrow. Financing relates to how a buyer secures funds for purchasing property, but it doesn't involve the holding of funds by a third party. A legal requirement for all property sales is not accurate since not all transactions necessitate escrow, although it can be common practice in many cases. Lastly, a document outlining the terms of sale refers to a purchase agreement or contract, not to the concept of escrow itself.