Earnest money is typically held by which type of entity in a real estate transaction?

• A. Title companies, banks, savings and loans and credit unions
• B. Insurance companies
• C. Real estate brokers
• D. Escrow agents

Answer: (D)

Neutral third-party escrow is used to hold earnest money because the funds must be protected and kept separate from either party’s assets until the contract terms are fulfilled or the deal falls through. An escrow agent serves as a fiduciary, holding the buyer’s money in trust and releasing it only according to the agreement. This setup reassures both sides that the money won’t be misused and that it will be available to apply toward the purchase at closing or refunded if contingencies aren’t met.

In practice, an escrow agent can be a title company or an independent escrow company, and sometimes a bank provides escrow services. The key idea is impartiality and proper handling of funds. Insurance companies and real estate brokers aren’t typically the entities that hold earnest money, and while banks can be involved in related escrow services, the standard concept is the neutral escrow holder.