Iowa Real Estate Practice Exam

What should a broker do if they receive earnest money that is to be used for commission?

1. Deposit it into personal account

2. Transfer it to the commission account

3. Retain it in the trust account until instructed

4. Immediately refund it to the buyer

The correct answer is: Transfer it to the commission account

When a broker receives earnest money that is designated to be used for commission, the appropriate action is to transfer it to the commission account. This practice ensures that the earnest money is handled according to legal and ethical guidelines, keeping the transaction transparent and compliant with state regulations. Transferring the funds to the commission account allows the broker to properly document the transaction and maintain accurate records, which is vital for both regulatory compliance and financial accountability. This method also distinguishes the funds from personal or other business funds, thus preventing potential conflicts of interest or misuse. Other options, such as depositing the money into a personal account, not only jeopardize compliance with real estate laws but also can lead to severe penalties for the broker. Retaining the money in a trust account without proper authorization or use could potentially delay the transaction unnecessarily. Refunding the money back to the buyer would not fulfill the agreed-upon transaction process if the earnest money was intended for Commission. It’s important for brokers to follow the correct procedures to maintain professionalism and integrity within the real estate industry.