Final answer:
Earnest money is a buyer's deposit in a real estate transaction; it must not be used for the seller’s expenses, transferred to personal accounts, mixed with the seller’s funds, or used for property maintenance. It is held in escrow until the transaction completes or as contractually agreed upon.
Step-by-step explanation:
Earnest money is a deposit made by a purchaser as proof of their commitment to complete a real estate transaction. It's imperative that these funds are handled properly to ensure the integrity of the transaction and the protection of the involved parties.
Earnest money from the purchaser must be kept in a special account and must not be:
- Used for the seller's personal expenses.
- Transferred to the real estate agent's personal account.
- Combined with the seller's funds.
- Used for property maintenance costs.
These funds are held in escrow by a neutral third party and are not to be utilized until the transaction is finalized or as agreed upon in the contract. In real estate, escrow accounts can also be used to pay for recurring expenses, such as home insurance and property taxes, as part of the buyer's monthly mortgage payment.