A buyer hesitates to pay before receiving something; a seller hesitates to deliver before payment is secured. Escrow creates an intermediate position. The buyer deposits funds with a third party, which releases them when the specified conditions have been satisfied.
Escrow can hold money, documents, or other assets. Its central function is separating temporary custody from either party's unilateral control. The exact conditions and obligations depend on the agreement and applicable rules.
Trust moves to the middle
Imagine an equipment transaction in which release follows a documented inspection. The seller knows funds have been deposited, while the buyer knows they are not released merely because the seller asks. The arrangement changes what each party must trust the other to do.
It also creates new dependencies. The holder must be trustworthy, the deposit genuine, and the release condition clear enough to administer. If the parties disagree about whether the inspection was passed, escrow does not magically resolve the underlying disagreement.
The useful mechanism is conditional release. It can make a difficult sequence of commitments possible, but only by giving a third party a defined role and supplying instructions they can actually follow. Ambiguity in those instructions becomes especially consequential when money is already held between the parties.