In real estate transactions, what does "escrow" refer to?

In real estate transactions, "escrow" refers to a temporary hold of funds or documents by a neutral third party until certain conditions are met. This is a critical part of the process to ensure that both the buyer and seller fulfill their obligations outlined in the purchase agreement. The escrow agent holds the buyer's earnest money deposit, as well as any necessary documents, and only releases them when all conditions—such as inspections or financing contingencies—are satisfied. This process helps protect all parties involved by ensuring a secure and fair transaction.

The other options describe different concepts within real estate but do not accurately capture the definition of escrow. A financial arrangement involving a bank does not specify the neutral third-party role that escrow plays. A promise made by the buyer pertains more to obligations rather than the secure holding of funds or documents. Lastly, while a security deposit is indeed part of certain transactions, it does not embody the broader and crucial role of escrow in managing the entire transaction process.