Wisconsin Real Estate Sales Practice Exam

Which parties can legally hold earnest money in a real estate transaction?

1. The seller or buyer only

2. An attorney or parties involved in the transaction

3. Only the broker

4. Any family member of the buyer

The correct answer is: An attorney or parties involved in the transaction

In a real estate transaction, earnest money is a deposit made by a buyer to demonstrate their commitment to completing the purchase. This money is meant to provide assurance to the seller that the buyer is serious about the transaction. The parties who can legally hold earnest money must be trustworthy and have the authority to handle such funds appropriately. An attorney or parties involved in the transaction are qualified to hold earnest money. Attorneys often hold these funds in trust accounts, ensuring that they are managed in accordance with legal and ethical obligations. This provides a level of security for both the buyer and the seller, as the funds can be disbursed according to the terms of the purchase agreement. Other parties, such as real estate brokers, are also typically involved in handling earnest money, but the key point is that legitimate professionals associated with the transaction, such as attorneys and brokers, are recognized by law as capable of receiving and managing these funds. This helps mitigate the risk of mismanagement and provides a clear framework for the distribution or return of the earnest money, depending on the outcome of the transaction. This context leaves out unqualified individuals, such as family members of the buyer, as acceptable holders of earnest money, since they lack the professional accountability and legal framework necessary to manage such