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

The term "escrow" refers to a neutral third party that holds funds or documents until certain conditions are met in a real estate transaction. This process ensures that all parties involved fulfill their contractual obligations before the transaction is fully executed. For example, the buyer's funds might be held in escrow until the seller provides a clear title or meets specific conditions as specified in the purchase agreement. This helps protect the interests of both the buyer and the seller, as neither party has full access to the funds or documents until all terms are satisfied.

In the context of the other options, a type of mortgage does not represent the concept of escrow, as mortgages pertain to financing for purchasing property. A discount on closing costs is unrelated to how funds are held or managed during a transaction. Lastly, a buyer's financial commitment typically refers to the financial responsibility that the buyer takes on when purchasing a property, and does not encompass the holding mechanism and protective role that escrow provides.