A trust account, also called an earnest money or escrow account, is an account established by someone who is being "trusted" to hold your money for a temporary amount of time. In real estate, trust accounts are generally for earnest money, rental security deposits and any other situation in which a broker might briefly have custody of another person's money.
The money in a trust account does NOT belong to the broker but to the person for which it is being held. There are strict rules in place to safeguard funds being held in trust accounts. Money that finds itself in custody of a trust account is subject to those rules and to the provisions of the contract that allowed it to be placed there in the first place.
For example, when a buyer submits an earnest money check with their offer, that check will be deposited into the selling brokerage's designated trust account. This may be an account held by the broker at a financial insitiution or that broker may use an outside entity, like a title company. The money is not being given to the seller or to the broker.
Real estate contracts will specify under which conditions earnest money may be released. Usually, but not always, this will be back to the buyer, turned over to the seller or applied at closing to the purchase price of the property. Other situations may exist but one rule remains constant . . . Trust Account Monies can only be released in accordance to the contract that gave custody of the money to the broker to begin with.
So, if you were wondering what happens to the earnest money you submit, now you know. Yes, there are risks with offering earnest money. Your contract will spell out exactly what those risks are. Carefully read and understand it and know that your agent and broker follow strict guidelines to minimize the risks as much as possible.
*This information is intended only to provide further clarification of real estate issues in Laramie, Wyoming. I am not an attorney. Any consumer with questions about the real estate process should always consult an attorney of their own.