Escrow
A neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
Full Definition
Escrow is a legal arrangement in which a neutral third party (the escrow agent or escrow company) holds money, documents, and instructions from both buyer and seller until all conditions of the purchase contract have been met. Once all conditions are satisfied — the buyer has secured financing, inspections are complete, title is clear, and all documents are signed — the escrow agent disburses funds to the appropriate parties and records the deed, completing the transaction. In mortgage lending, 'escrow account' also refers to an impound account held by the lender to collect and pay property taxes and insurance on behalf of the borrower. In most Western states, escrow companies handle closings; in Eastern states, closings are typically handled by attorneys.
Real-World Example
After a purchase contract is signed, the buyer's earnest money goes into escrow. The escrow agent holds it, collects all closing documents, and disburses funds only after all conditions are met at closing.
How Escrow Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
Escrow agents are neutral — they follow instructions; they do not advise parties. Distinguish between transaction escrow (for closings) and mortgage escrow accounts (for taxes and insurance). The escrow agent holds, does not use, the funds.
Related Terms
More Closing & Settlement Terms
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