California Real Estate Practice Exam

What should a real estate broker do with a $10,000 deposit received from a buyer along with a purchase offer and instructions from the seller to place it into escrow?

1. deposit it into the broker’s trust account

2. hold it in the office until the seller signs the papers

3. place it into escrow

4. return it to the buyer

The correct answer is: deposit it into the broker’s trust account

The correct approach for a real estate broker receiving a $10,000 deposit from a buyer, accompanied by instructions from the seller to place it into escrow, is to place it into escrow. This process is essential as it ensures that the funds are safeguarded and appropriately managed until the transaction formally closes. In a real estate transaction, the deposit, often called "earnest money," signifies the buyer's serious intent to purchase the property. By placing it into escrow, the broker upholds their fiduciary duty to both the buyer and seller, ensuring that the funds are handled according to agreed-upon terms. Escrow acts as a neutral third party that holds the deposit until the transaction conditions, specified in the purchase agreement, are met. Once all parties fulfill their obligations, the funds are disbursed according to the instructions contained in the escrow agreement. While it might seem plausible to deposit the funds into the broker's trust account or to hold it in the office until the seller signs the papers, these actions would not follow proper escrow procedures. Returning the deposit to the buyer would be inappropriate, as it would not reflect the intent of the buyer to proceed with the purchase, nor would it align with the seller's instructions regarding escrow. Thus, placing the