How is escrow defined in real estate transactions?

In real estate transactions, escrow refers to a financial arrangement where a neutral third party holds and manages funds or assets on behalf of the buyer and seller until certain conditions are met. This typically occurs during the closing process of a property sale. The escrow agent ensures that the terms of the purchase agreement are fulfilled, such as inspections and financing, before releasing the funds to the seller and transferring the title to the buyer. This mechanism provides protection for both parties, ensuring that neither the buyer nor the seller can access the funds or the property until all stipulated conditions have been satisfied, thus facilitating a secure transfer of ownership.

The other options do not capture the essence of escrow. Direct payments to sellers do not involve this neutral third-party arrangement, rental agreements are distinct from the transfer of property ownership, and a governmental registration procedure does not relate to the financial protection and management that escrow provides in real estate transactions.