What type of account is held by a neutral third party for funds until closing?

What type of account is held by a neutral third party for funds until closing?

• A. Retirement Account
• B. Escrow Account
• C. Trust Fund
• D. Holding Account

Answer: (B)

An escrow account is specifically designed to hold funds on behalf of a buyer and seller until all conditions of a real estate transaction are fulfilled. This type of account is managed by a neutral third party—typically a title company or an escrow agent—who ensures that the funds are distributed correctly at closing. One of the critical functions of an escrow account is to provide security and assurance to both the buyer and seller during the transaction process. The buyer can be confident that their money is safe and will not be released until all contractual obligations are met. Meanwhile, the seller knows that the funds have been secured and are readily available for disbursement once the sale is finalized. In contrast, other types of accounts do not specifically serve this unique purpose. A retirement account is meant for saving funds for retirement, a trust fund is often used to manage assets for beneficiaries based on specific conditions set by the grantor, and a holding account generally refers to any manner of account used to temporarily hold funds without the structured oversight typical of an escrow arrangement. Therefore, the use of an escrow account is integral in real estate transactions to protect the interests of both parties involved.

An escrow account is specifically designed to hold funds on behalf of a buyer and seller until all conditions of a real estate transaction are fulfilled. This type of account is managed by a neutral third party—typically a title company or an escrow agent—who ensures that the funds are distributed correctly at closing.

One of the critical functions of an escrow account is to provide security and assurance to both the buyer and seller during the transaction process. The buyer can be confident that their money is safe and will not be released until all contractual obligations are met. Meanwhile, the seller knows that the funds have been secured and are readily available for disbursement once the sale is finalized.

In contrast, other types of accounts do not specifically serve this unique purpose. A retirement account is meant for saving funds for retirement, a trust fund is often used to manage assets for beneficiaries based on specific conditions set by the grantor, and a holding account generally refers to any manner of account used to temporarily hold funds without the structured oversight typical of an escrow arrangement. Therefore, the use of an escrow account is integral in real estate transactions to protect the interests of both parties involved.