Iowa Real Estate Practice Exam

If a real estate salesperson decides to sell their personal residence "by owner," what are they allowed to do with earnest money?

1. Deposit it into their broker's account

2. Keep it until closing

3. Deposit it into their personal checking account

4. Use it for personal expenses

The correct answer is: Deposit it into their personal checking account

When a real estate salesperson sells their personal residence "by owner," the proper handling of earnest money is crucial. The acceptable practice in this scenario allows the salesperson to deposit the earnest money into their personal checking account. This option is valid because, unlike transactions involving clients where earnest money needs to be safeguarded and handled according to specific rules, a salesperson selling their own property can manage their funds directly without the oversight required in broker-client transactions. The rationale behind this allowance is that the salesperson is acting in a personal capacity rather than as an agent for a client. Thus, any funds related to their personal sale do not require the same level of trust and regulatory compliance as funds collected on behalf of a client. By depositing the earnest money into their personal account, the salesperson is effectively managing their own transaction, which is permissible when dealing with their own property. Other choices involve practices that are not permitted for various reasons, including regulatory compliance and ethical considerations when handling third-party funds.