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

The term "escrow account" refers to a third-party account where funds are held until a transaction is finalized. In real estate transactions, this account is typically used to hold funds such as earnest money deposits or property taxes until the closing of a sale. The purpose of the escrow account is to ensure that the money will be distributed according to the terms agreed upon by both parties involved in the transaction. By using a neutral third party to manage the funds, escrow helps protect the interests of both the buyer and the seller, ensuring that contractual obligations are met before the funds are released.

This practice instills trust and security in transactions, making it a vital component in real estate processes.