How must a licensed broker handle earnest money deposits?

A licensed broker is required to handle earnest money deposits with care to ensure compliance with legal and ethical standards. The correct approach is to place these funds into a trust account by the next business day. This requirement is in place to protect both the buyers and sellers in a real estate transaction. By depositing the funds into a trust account, the broker ensures that the money is safeguarded until the transaction is completed or a decision is made regarding its disposition.

Using a trust account helps to clearly separate the earnest money from the broker's personal and operational funds, which is an essential aspect of maintaining transparency and trust in real estate dealings. This practice also mitigates the risks associated with mismanaging the funds and complies with laws regulating the handling of client money.

In this context, other methods of handling earnest money deposits, such as returning them to the buyer if the deal does not proceed or leaving them with the client, do not adhere to established protocols and could potentially lead to legal complications or breaches of fiduciary duty.