Tennessee Realtor State Practice Exam

How should a real estate agent handle earnest money in a transaction?

1. Deposit it immediately regardless of offer status

2. Hold it until all contracts are signed

3. Deposit it only if closing occurs

4. Return it if the buyer changes their mind

The correct answer is: Deposit it immediately regardless of offer status

A real estate agent should handle earnest money by depositing it immediately. This practice is important because earnest money serves as a demonstration of the buyer's good faith in committing to the purchase of a property. By depositing it right away, the agent ensures that the funds are secure and can be accounted for throughout the transaction process. Depositing earnest money promptly can help facilitate the transaction by showing that the buyer is serious, which can also put the seller at ease. It also establishes a clear record of the transaction and aligns with standard industry practices regarding the handling of earnest money. In contrast, holding the money until all contracts are signed can delay the process, creating unnecessary complications or misunderstandings. Dependent on the status of closing before depositing is also not advisable, as it may lead to uncertainty regarding the buyer's intentions. Returning the earnest money simply because a buyer has a change of heart without a valid reason (like a contract contingency) can open the agent and the broker to potential disputes and misunderstandings about the terms of the agreement.