A more thorough explanation:

An escrow is a financial arrangement where two or more parties involved in a legal transaction deposit assets, documents, and/or money with an independent third party known as the escrow agent. The escrow agent holds the assets, documents, and/or money in escrow until a contractual condition agreed by the parties in the escrow agreement is fulfilled. The escrow agreement also includes the escrow instructions that the escrow agent must follow.

Escrow is commonly used in various legal transactions where it is helpful for the parties to have the escrow agent hold the assets, documents, and/or money in escrow while the contractual condition agreed by the parties is fulfilled. For example:

• In real estate transactions, the buyer and seller of a house use an escrow to hold the money for the payment of the house. The escrow agent holds the money until the conditions for the purchase of the house are satisfied, such as inspections and confirmation of funds. Once the conditions are met, the escrow agent delivers the money to the seller.
• In mergers and acquisitions transactions, the buyer and seller of stock use an escrow to hold a portion of the purchase price for a period of time set by the parties. The escrow agent holds the money until the conditions established in the stock purchase agreement are met, such as the performance of post-closing obligations and confirmation of representations and warranties. Once the conditions are met, the escrow agent delivers the money to the seller.

These examples illustrate how escrow can be used to ensure that both parties fulfill their obligations in a legal transaction. The escrow agent acts as a neutral third party to hold the assets, documents, and/or money until the conditions are met, providing assurance to both parties that the transaction will be completed as agreed upon.