Contracts
Earnest money
A buyer’s deposit evidencing good faith, held by a neutral party
Held in a trust or escrow account, never in the brokerage’s operating account, and applied to the purchase price at closing. What happens to it if the deal collapses is governed by the contract — usually by contingency provisions and a liquidated damages clause.
How the exam asks about it
Two facts carry the questions: it is not what makes the contract valid, and mishandling it is one of the fastest routes to license discipline.
Related terms
Sitting the license exam? Find out what you actually know.
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