CTC Financial Transactions and Escrow Flashcards

What is 'earnest money' in a real estate transaction?

Answer: A deposit made by the buyer to demonstrate serious intent to purchase

Earnest money is a good-faith deposit from the buyer showing serious intent to purchase, which is typically credited toward the purchase price at closing.

Who typically holds the earnest money deposit during a real estate transaction?

Answer: An escrow company, title company, or broker's trust account

Earnest money is held in a neutral third-party account — such as escrow, title company, or a broker's trust account — until the transaction closes or is cancelled.

What is the primary role of an escrow officer in a real estate transaction?

Answer: To act as a neutral third party that manages funds and documents until all conditions are met

An escrow officer serves as a neutral intermediary who holds funds and documents, ensuring all contractual conditions are fulfilled before the transaction closes.

When must a transaction coordinator verify that the earnest money deposit has been received?

Answer: Within the timeframe specified in the purchase agreement

The TC must confirm earnest money deposit within the timeline defined in the purchase contract, as failure to deposit on time can constitute a breach of contract.

What happens to earnest money if the buyer backs out of a transaction without a valid contingency?

Answer: The seller may be entitled to keep the earnest money as liquidated damages

If a buyer defaults without exercising a valid contractual contingency, the seller may be entitled to retain the earnest money as liquidated damages for lost time and opportunity.

What is the key difference between an escrow account and a broker's trust account?

Answer: Escrow accounts are transaction-specific while trust accounts hold various client funds for a brokerage

An escrow account is opened for a specific transaction, while a broker's trust account is a broader account maintained by the brokerage to hold funds for multiple clients.