What does “escrow” refer to in the context of home construction?

In the context of home construction, "escrow" refers to the process of holding funds in trust until specific terms outlined in a contract are fulfilled. This financial arrangement ensures that both parties—the homebuyer and the builder—are protected during the transaction. For example, funds for construction may be held in escrow and released in stages as certain milestones are achieved, ensuring that the builder completes the work to the satisfaction of the buyer before receiving payment.

This system not only offers security for the buyer, who can be assured that their investment is safeguarded until the construction meets agreed-upon standards, but it also helps the builder manage cash flow by ensuring that payment is tied directly to the completion of specific tasks. This practice is a standard part of the construction financing and procurement process, helping to build trust between all parties involved.