Define the term "escrow" in real estate transactions.

In real estate transactions, the term "escrow" refers to a financial arrangement in which a neutral third party holds and manages funds or documents on behalf of the involved parties until certain conditions are met. This process is particularly important because it ensures that no funds or property exchanges hands until all contractual obligations are fulfilled.

For instance, when a buyer and seller agree on a sale, the buyer's earnest money deposit might be placed in escrow. This deposit is held by the third party until the sale is finalized, ensuring that both the buyer and seller are protected during the transaction. The escrow agent manages this account and can also handle various closing costs, title insurances, and other necessary documents, ensuring that the transaction proceeds smoothly and safely.

The other options describe different aspects of real estate but do not accurately define escrow. A legal agreement to transfer property ownership pertains more to the deed than to escrow. A type of mortgage arrangement discusses financing rather than the safeguarding of funds or documents. A property management service refers to the management of rental properties, which is separate from the functions of escrow. Thus, the definition that aligns with the role of escrow in transactions is the arrangement where a third party holds funds.