What is the primary function of an escrow account?

The primary function of an escrow account is to hold funds until certain conditions are met. This arrangement is often used in real estate transactions, where the buyer deposits funds into the escrow account, and those funds are only released to the seller when specific terms of the sale have been satisfied, such as inspections, contingencies, or financing approval. By using an escrow account, both parties can ensure that their interests are protected, as the funds are secured and managed by a neutral third party until the agreement is fulfilled.

This functionality makes escrow accounts crucial in transactions where trust between parties might be limited, as it adds a layer of security and assurance to the process. Additionally, escrow accounts are commonly utilized in other scenarios, such as online transactions and legal agreements, to guarantee that payments are made only when the required services or products have been delivered and accepted.