Contracts
Which of the following statements about earnest money is TRUE?
AEarnest money must be cash only
BEarnest money belongs to the seller from the moment of contract signing
CEarnest money is a deposit showing the buyer's good faith and is held in trust until closing✓ Correct
DEarnest money is automatically forfeited if the buyer fails to close
Explanation
Earnest money is a good-faith deposit held in trust by the broker or escrow agent. It is not the seller's until the transaction closes or until a party defaults as specified in the contract. The disposition of earnest money upon default depends on the contract terms.
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