Texas Real Estate State Practice Exam 2025 – All-in-One Guide to Master Your License Success!

In a real estate transaction, earnest money is typically held by a neutral third party, which is often the title company or a real estate broker acting as an escrow agent. The role of the escrow agent is to manage the earnest money funds until the transaction is completed or terminated, ensuring both the buyer's and seller's interests are protected.

Holding the earnest money in a neutral escrow account provides security to both parties. If the transaction proceeds successfully, the funds are applied toward the buyer's down payment or closing costs. Conversely, if the transaction falls through due to certain contingencies being unmet, the escrow agent can disburse the earnest money according to the terms of the contract, typically returning it to the buyer.

This process mitigates risk for both the buyer and seller, offering a level of assurance that the earnest money will be handled appropriately. The other options suggest direct involvement of either party in holding the money, which could lead to conflicts of interest and complications in managing the earnest money properly.