Leasing License Practice Exam

How is escrow defined in the context of real estate practice?

1. A method of financing a property purchase

2. A document kept until certain conditions are fulfilled

3. A type of appraisal process

4. A real estate marketing strategy

The correct answer is: A document kept until certain conditions are fulfilled

In the context of real estate practice, escrow refers to a method of holding documents or funds by a neutral third party until certain conditions are met. This typically includes situations such as a real estate transaction where the buyer and seller agree to have an independent escrow agent hold the purchase funds and necessary documents until the sale conditions are satisfied, such as the buyer securing financing, inspections being completed, or other contingencies being resolved. By using escrow, both parties are protected; the seller gains assurance that the buyer has the funds available before the transaction is finalized, and the buyer can be confident that their funds will not be released until all agreed-upon terms are fulfilled. This practice is crucial for minimizing risk during a property transaction, ensuring that all parties adhere to their obligations before the final transfer of property ownership occurs.