When should a real estate broker release earnest money deposit funds?

As soon as an agent or broker accepts an earnest money deposit, he becomes an escrow agent. This means that, in most cases, the earnest money cannot be released until both parties provide written permission, either through the purchase agreement or because of some unforeseen circumstance. The only other acceptable reason to release earnest money funds is under instruction from a court order.

The rules that govern earnest money deposits in real estate transactions vary from state to state. It is common for the prospective buyer to set down a deposit equal to 1 to 3% of the purchase price, thereby showing the seller he is interested by putting some "skin in the game."

Earnest money is almost always kept with the real estate broker or a title company, depending on the state. Once provided, the funds are kept in escrow until just before the sale is completed. In most cases, the earnest money, once released, is applied as part of the down payment.

There are very few universal rules when it comes to handling earnest money. Instead, the rules are established in the sales and purchase agreement. The agreement covers how refunds are handled, if there is a cancellation fee if the buyer backs out and under what parameters the broker or title company determines if the money is returned.

It is always a good idea for the broker to seek a written release from both parties before releasing the earnest money deposit. If both parties claim the deposit, the broker should not release the funds until the two sides have come to terms or a court order is presented.