[M4v3R]

The money is sitting on special multisignature address before transaction is resolved. It's a 2 out of 3 address, which means that two signatures are required to move the funds further. The good thing about it is that you can totally skip the escrow party here if buyer and seller agree - they both just sign the transaction and send it to the network. Escrow is needed only in case of a conflict - he would have then to investigate and sign a transaction with either buyer to refund the Bitcoins or to seller to forward them to him as contract described (in a case that buyer disappears for some reason).

This setup has one downside though - if one party sides with the escrow, they could agree to sign a transaction to scam the other party. That's why it is not 100% bulletproof and you have to carefully select your escrow partner so that both parties trust him to an extent.