Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What term refers to money, including earnest money and security deposits, held by a broker on behalf of another person?

1. Trust money

2. Escrow funds

3. Client funds

4. Deposit money

The correct answer is: Trust money

Trust money is the correct term that refers to the funds, like earnest money and security deposits, that a broker holds on behalf of another person. This category of money is typically held in a trust account, which is a special type of account used to safeguard these funds until they are needed for their intended purpose, such as for completing a real estate transaction or returning a security deposit at the end of a lease. The importance of trust money lies in the fact that it establishes a fiduciary responsibility on the part of the broker to manage these funds ethically and in accordance with the law. Brokers must follow strict regulations concerning the handling of such funds to protect their clients' interests and ensure compliance with real estate laws. While escrow funds might seem similar, they specifically refer to the funds held by a neutral third party during a transaction, rather than funds specifically entrusted to a broker. Client funds is a broader term that could encompass various types of money a broker might handle, but it does not specifically denote the trust aspect. Deposit money is also a vague term and doesn’t convey the standard fiduciary responsibility associated with holding money on behalf of others.