If you’re an aspiring homebuyer, it’s likely that you’ve heard the word «escrow» — but you might not understand exactly what it means. Or you might be selling your home and have learned that your funds could be tied up «in escrow» until the sale is finalized — but you’re not sure where that leaves you.

Simply put, escrow is an important part of the homebuying process, one that is designed to safeguard your interests and provide a secure framework for completing what is likely to be one of the largest and most important financial transactions of your lifetime.

Instead of having buyer and seller exchange funds or property directly, which could be risky, the real estate industry protects participants in many states by using third-party escrow accounts to hold the funds, documents and assets in the transaction until certain conditions are met. This process is meant to ensure a smooth and fair exchange between the buyer and seller.