Where is earnest money typically held during a real estate transaction?

Earnest money is typically held in an escrow account during a real estate transaction. An escrow account is a neutral third-party account that safely holds funds until all conditions of the sale are met. This ensures that both the buyer and seller are protected, as the earnest money demonstrates the buyer's serious intent to purchase the property.

When the sale is completed, the earnest money can be applied toward the buyer's down payment or closing costs. If the transaction does not proceed for a valid reason outlined in the contract, the earnest money can be returned to the buyer. This arrangement provides assurance to both parties and facilitates trust in the transaction process, making it a standard practice in real estate dealings.

Holding earnest money in a personal bank account, cash register, or safe deposit box would not provide the same level of security or impartiality, which is why these options are not typically acceptable for earnest money handling.