What is the purpose of an escrow account in real estate?

The primary purpose of an escrow account in real estate is to hold funds on behalf of a party in trust. This account acts as a secure intermediary, where money and documents related to a real estate transaction are held until certain conditions are met. For example, earnest money deposited by a buyer is often placed in an escrow account to ensure that it is safeguarded until the closing of the sale, at which point it can be applied towards the purchase price. This setup provides protection for both the buyer and the seller by ensuring that funds are not released until all obligations are fulfilled, thereby facilitating trust and fairness in the transaction process.

In contrast, using an escrow account for personal use, funding advertising expenses, or paying office administrative costs does not align with its designated role in real estate transactions. The escrow account is specifically meant to manage funds related to property transactions, ensuring that both parties adhere to the terms of the agreement in a secure manner.