Wisconsin Real Estate Sales Practice Exam

What must be documented when earnest money is held?

1. Only the amount received

2. The method of holding and any agreements made

3. No documentation is needed

4. The address of the property only

The correct answer is: The method of holding and any agreements made

When earnest money is held, it is essential to document the method of holding and any agreements made regarding the earnest money. This documentation protects all parties involved in the transaction by providing a clear and agreed-upon record of how the earnest money will be managed. It typically includes details concerning the financial institution where the funds are held, whether the earnest money is in an escrow account, and any terms set forth regarding its release. Proper documentation helps to ensure transparency and accountability, and it serves as a point of reference should any disputes arise later in the transaction process. It's important for real estate professionals to understand that managing earnest money is not just administrative but also plays a crucial role in the legal aspects of a real estate transaction.