Funds held by a 3rd party on behalf of two parties in a transaction are generally called what?

• A. funds held by the seller alone
• B. funds held by the third party on behalf of two parties in a transaction
• C. funds held by the buyer after closing
• D. funds recognized as earnest money only

Answer: (C)

Funds held by a third party on behalf of two parties in a real estate transaction are described as escrow funds. This arrangement uses an impartial intermediary to safeguard money—like earnest money or other closing funds—until all parts of the agreement are fulfilled and the transaction closes. The key idea is that the third party holds or controls the funds for both sides, ensuring neither party can access them prematurely and that disbursement happens according to the closing terms. After closing, those escrow funds are released to the appropriate parties or applied to the purchase per the closing statement. The concept isn’t about funds kept by the buyer after closing or limited to earnest money; it’s about the money held in escrow during the transaction to protect both sides.