Who typically holds earnest money deposits during a real estate transaction?

In real estate transactions, earnest money deposits are typically managed by an escrow company. This arrangement serves multiple purposes: it provides a neutral third party to hold the funds, ensuring that neither the buyer nor the seller has direct access to the money until all contractual conditions are met. This helps to maintain trust and security throughout the transaction.

The role of the escrow company is crucial as they ensure that the funds are properly disbursed according to the terms agreed upon in the purchase contract, protecting the interests of both parties involved. By using an escrow service, it helps to minimize the risk of disputes over the earnest money, as the company follows the specific instructions outlined in the agreement.

While buyers or sellers may initially consider holding the earnest money themselves, doing so can lead to complications and mistrust, making the involvement of a neutral party vital in facilitating a smooth transaction.