Glossary

Escrow

An arrangement in which a neutral third party holds funds, documents, or both on behalf of the transacting parties, releasing them only upon satisfaction of the conditions the parties have jointly instructed.

Escrow exists to solve the fundamental trust problem in a sale — neither party wants to fully perform, wiring the purchase price or delivering the deed, before being certain the other side will too — by inserting a neutral stakeholder, typically a title company or attorney, who releases funds and recorded documents simultaneously once all closing conditions are met. Beyond the closing itself, escrow is used earlier in the transaction to hold the earnest money deposit, and ongoing escrow accounts, distinct from transactional escrow, are also used post-closing by lenders to reserve for taxes, insurance, and capital expenditures — brokers should be careful not to conflate the two uses of the term in conversation with clients. The escrow agent acts strictly on the parties' joint written instructions or a court order, which is why unilateral deposit-release disputes must typically be resolved by the parties or by litigation or arbitration rather than by the escrow agent making an independent judgment call.