What purpose does escrow serve in financial transactions?

The purpose of escrow in financial transactions is primarily to hold money until specific conditions are met. In different types of transactions, especially in real estate or high-value purchases, escrow accounts are set up to secure funds during the period that the transaction is being finalized. This ensures that the seller gets paid and the buyer has the assurance that the funds are available and will be released only when the agreed-upon terms are fulfilled.

The use of escrow helps to provide a level of security and trust between parties involved in a transaction. This is important because it mitigates risks associated with fraud, non-performance, or other issues that may arise before the completion of the transaction. By holding the funds in escrow until all conditions—such as inspections, financing, or other contingencies—are satisfied, it guarantees that both parties adhere to the agreements made during the negotiation process.