What is an escrow account?

An escrow account is a secure account where funds are held until certain conditions of a real estate transaction are fulfilled. This function is crucial in the context of real estate transactions, as it provides both parties with a layer of security. The escrow agent or company holds the funds—often the buyer's earnest money deposit—until all contractual obligations are met, such as the completion of inspections, the securing of financing, or the final agreement on repairs. Once these conditions are satisfied, the escrow account is disbursed accordingly, facilitating a smooth closing process. This arrangement helps prevent any potential disputes by ensuring that funds are not released until all terms of the sale are adhered to, thereby protecting the interests of both the buyer and the seller.