Iowa Real Estate Practice Exam

What should a broker do with a buyer's earnest money check upon receiving it?

1. Cash it immediately

2. Deposit it in an interest-bearing trust account

3. Give it to the seller right away

4. Return it to the buyer

The correct answer is: Deposit it in an interest-bearing trust account

When a broker receives a buyer's earnest money check, the appropriate action is to deposit it in an interest-bearing trust account. This practice is crucial because earnest money serves as a demonstration of the buyer's commitment to the transaction and is held in trust until the closing process is completed. Placing the funds in a trust account ensures they are securely managed and segregated from the broker's personal or business funds, promoting ethical and responsible handling of client money. By depositing the earnest money in an interest-bearing account, the funds can earn interest, which may ultimately benefit the buyer or be distributed according to the terms of the sales agreement, depending on the local laws and regulations. This also establishes a habit of professionalism and fiduciary duty, which are essential components of a broker’s responsibilities in real estate transactions.