New Jersey Real Estate License Exam Practice Question
A broker received $7,000 in earnest money and placed it in the escrow account. Later, the broker withdrew $7,000 to pay for office expenses, promising to replace it after closing. This situation is:
Correct Answer: C
Rationale: Withdrawing earnest money for personal expenses constitutes conversion, which is the unauthorized use of someone else's property. This action violates the fiduciary duty a broker has to their clients, as earnest money should remain secure until the transaction is completed.
Option A is incorrect because the broker cannot use earnest money for office expenses, regardless of pending commissions. Option B is misleading; federal banking regulations do not permit such withdrawals. Option D is also wrong, as disclosure does not legitimize the improper use of funds. Proper handling of earnest money is crucial for maintaining trust and legal compliance.
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