Escrow

Escrow is an arrangement where a neutral third party holds money and documents during a real estate transaction, releasing them only when the agreed conditions are met.

Escrow means a neutral third party — usually a title company, escrow company, or closing attorney — holds money and documents while a deal is in progress, and releases them only when the conditions in the contract are met. When a purchase contract is signed, the earnest money deposit goes into escrow, not into the seller's pocket. At closing, the buyer's funds land in escrow, the escrow agent pays off liens and fees according to the settlement statement, and only then does money reach the seller and the deed get recorded.

In a wholesale deal, escrow is what keeps everyone honest. The wholesaler's earnest money sits with the title company, where the seller cannot spend it and where it can be returned if the contract's conditions allow an exit. On the dispo side, the end buyer's deposit is held the same way. "We're in escrow" is also everyday shorthand for "under contract and moving toward closing." Separately, mortgage lenders use the same word for the account that collects property taxes and insurance with each payment — a different mechanism, same idea of a third party holding money for a defined purpose.

What beginners get wrong: handing earnest money directly to a seller. Money that skips escrow is money you may never see again, and experienced sellers and buyers expect a neutral holder anyway. The other mistake is assuming "in escrow" means done — deals die in escrow over inspections, title problems, and buyers who vanish, so keep working the file until the deed records.