What is the function of a real estate escrow account?

The function of a real estate escrow account is to safely retain funds until the completion of a transaction. This type of account is used as a neutral holding place for financial assets involved in a real estate deal, such as earnest money deposits, down payments, and other funds necessary for the transaction. Escrow provides protection for both the buyer and the seller by ensuring that the funds are only released when all parties have fulfilled their contractual obligations, thereby facilitating a smooth and secure transfer of ownership.

In contrast, holding payments for utilities, collecting taxes for local government, or charging fees for home inspections do not align with the primary purpose of an escrow account. Each of these activities involves different financial management processes and do not offer the same level of security and neutrality associated with the escrow process in a real estate transaction.