Escrow is a financial arrangement where a third party holds and regulates the payment of funds required for two parties involved in a given transaction. It helps make transactions more secure by keeping the payment in a secure escrow account which is only released when all of the terms of an agreement are met as overseen by the escrow company.

In real estate, escrow is commonly used in the context of buying a house. When a buyer and seller agree on a home sale, the buyer's earnest money deposit is placed in an escrow account. This account is also used to hold the buyer’s funds for the down payment and the lender’s funds to pay the seller for the balance owed on the property. Escrow ensures the seller doesn't receive the money until all terms are met, like passing inspections and the buyer receiving the title.

Additionally, homeowners often pay into an escrow account for property taxes and homeowner's insurance. The lender uses these funds to pay the bills on the homeowner's behalf, ensuring these critical payments are made on time.