If a buyer and seller dispute who is entitled to the earnest money after a failed contract, what is the BEST action for the broker?

Earnest money disputes are common when contracts fall through. The broker holds the money in trust and must NOT unilaterally decide who gets it. PROCESS: (1) HOLD in trust account until disposition is resolved; (2) PARTIES AGREE — if buyer and seller can agree in writing (release form signed by both), broker disburses per the agreement; (3) PARTIES CANNOT AGREE — broker may file INTERPLEADER (deposit funds with court, let court decide); state-specific procedures; (4) DELAY — broker cannot hold indefinitely without action; many states require specific action within a time period if parties don't agree. WHY HOLD: (a) Broker doesn't have authority to determine who's entitled; (b) Giving to wrong party exposes broker to liability from the other party; (c) Trust account rules require disposition based on agreement or legal order. CONTRACT TERMS often specify earnest money disposition in different scenarios: (a) If seller fails to perform → buyer gets earnest money back; (b) If buyer fails to perform (defaults) → seller may keep earnest money as liquidated damages, or sue for actual damages depending on contract terms; (c) If financing falls through (with proper financing contingency) → buyer typically gets earnest money back; (d) If inspection contingency activated within time period → buyer typically gets earnest money back. KEY POINT: contract terms determine entitlement, not broker discretion. When disputes arise, broker holds funds and facilitates resolution but doesn't decide. The state portion exam tests specific state procedures for earnest money disputes — interpleader rules, mandatory time periods, notification requirements, and broker liability.