What is the standard procedure for handling earnest money in a real estate transaction?

Earnest money handling is one of the most regulated aspects of real estate brokerage. Standard procedure: (1) Receive earnest money from buyer at contract signing (check, wire, or sometimes cash); (2) Deposit promptly — typically within 1-3 business days, per state law. Late deposits are a violation; (3) Deposit into the brokerage's designated trust account, not the broker's operating account or personal account; (4) Hold the funds until disbursement is authorized; (5) Disburse only when authorized: at closing (most common — funds applied to purchase per closing instructions); on mutual release (both parties sign release authorizing disbursement to one party); upon court order (for disputed earnest money). Disputed earnest money: when one party claims forfeit (e.g., buyer defaulted) and the other claims return (e.g., seller breached, buyer terminated within contingency), the broker should not unilaterally decide. Most brokerages refuse to disburse without mutual written agreement or court order — they hold the funds and let the parties resolve the dispute. Some states have specific procedures (interpleader action, statutory dispute resolution). The brokerage is not a judge of the dispute; the broker's safest position is to hold pending resolution. Failure to handle earnest money properly is one of the most common reasons for broker discipline.