What does "escrow" typically refer to in real estate transactions?

The term "escrow" in real estate transactions specifically refers to an arrangement where a neutral third party holds onto funds or documents on behalf of the buyer and seller until certain conditions are met for the transaction. This can include holding the buyer's deposit, the seller's deed, or other important documentation related to the property. The escrow agent ensures that both parties fulfill their contractual obligations before the transaction is completed, providing security and trust throughout the process.

This method reduces the risk for both parties by ensuring that neither the buyer nor the seller can access the funds or the property until all agreed-upon conditions are satisfied. For instance, an escrow may be released once the inspection is completed or the buyer's financing is approved.

The other choices do not accurately capture the essence of escrow in real estate transactions. The service that guarantees the lowest mortgage rate pertains more to loan origination, while the description of a loan for fixer-upper homes refers to a specific product and not to the escrow process itself. A legal agreement between buyers and sellers is more about the contract involved in the transaction rather than the mechanism of holding funds or documents.