Michael, I don't know the legal explanation of using escrow but I believe you are right in your understanding of it...the escrow being a third party to make sure that both sides of the deal are met and satisfied according to the terms they agreed upon. When I bought my house, I had to put down some money(not really a down payment per say) just to solidify the deal. This went into an escrow account, not actually to the builder(at least not right away), where it was held for 8 or so months.
You want to see the car before you pay for it anyway, so if it were me, and the car is too good to pass up, I think I might skip the escrow and use that $500 to fly down to CA and check the car out. After you thoroughly check it out, if it's a keeper, get your coin wired down from your bank and arrange shipping/drive it back yourself.
