Escrow serves two functions in real estate investing. During a purchase transaction, an escrow agent holds the earnest money deposit and manages the exchange of documents and funds between buyer and seller until all contract conditions are satisfied. After closing, an escrow account held by the mortgage servicer collects monthly payments for property taxes and insurance, disbursing them when due. Understanding escrow is important for investors because escrow shortages or surpluses directly affect monthly payment amounts, and the earnest money held in escrow during a transaction represents at-risk capital if the deal falls through outside of contingency protections.