What does the term “escrow” mean in real estate?

In real estate, "escrow" refers specifically to a neutral third-party account that holds funds or documents during a transaction. This arrangement is essential as it provides security and trust for both the buyer and the seller. When a property is being sold, the buyer typically deposits the purchase funds into the escrow account, while any necessary documents, such as the property title, are also held in this account.

The use of escrow protects both parties by ensuring that the buyer's money is not released to the seller until all conditions of the sale are met, such as inspections and title checks, and the seller is assured that the buyer has the necessary funds available. This minimizes the risk of fraud and ensures a smooth transaction process.

The other options, while related to different concepts in real estate, do not accurately define escrow. Property ownership refers to how ownership of real estate is held, calculating interest rates pertains to financing, and investment properties relate to real estate purchased for the purpose of generating profit. These concepts do not encompass the function and purpose of escrow in real estate transactions.