What is an escrow account?

An escrow account is fundamentally a neutral third-party account established to hold funds and documents during the process of a real estate transaction. This arrangement is crucial because it ensures that all parties involved—the buyer, seller, and lender (if applicable)—are protected. By utilizing an escrow account, the funds and documents are securely managed and disbursed according to the terms agreed upon in the purchase contract. This helps facilitate a smooth transfer of ownership and ensures that funds are only released when all conditions of the sale have been met.

Using an escrow account allows for transparency and provides a safeguard against fraud or misunderstanding between the parties. It offers assurance that the buyer’s deposit and other funds are protected until the transaction is complete, and it ensures that all necessary documents, such as title deeds and mortgage agreements, are appropriately handled.

While property tax payments, mortgage payments, and real estate commissions may involve separate accounts or financial arrangements, they do not encompass the primary function of an escrow account, which is specifically designed for holding and managing funds and documents in a transaction until all conditions have been satisfied.