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

What type of account is commonly used to hold client funds in Texas real estate transactions?

1. A savings account

2. An escrow account

3. A brokerage account

4. A checking account

The correct answer is: An escrow account

An escrow account is specifically designed to securely hold funds related to real estate transactions, such as earnest money deposits and closing costs, on behalf of clients. This account acts as a neutral third-party holding area until the conditions of the transaction are fulfilled, after which the funds can be disbursed appropriately. In Texas, the use of escrow accounts is essential for safeguarding client money and ensuring that it is not misappropriated during the real estate process. These accounts typically require both the buyer and seller's agreement to release funds, which adds a layer of protection for all parties involved. Other types of accounts, such as a savings account, brokerage account, or checking account, are not specifically tailored for holding client funds in real estate transactions, thus lacking the legal protections and specific protocols associated with escrow accounts.