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The seller could hold the funds, but that's not a good thing. If there's a problem with closing, the seller may not be willing to return your money.

2. The real estate firm could hold the money, but some companies don't have separate trust accounts and don't want the hassle, especially if there's interest involved. However, in some states, it is a requirement for a real estate company to have a trust account for this very reason.

3. A title company, attorney, bank or escrow firm can hold your money, which is probably the best option. But, there should also be a stipulation as to who gets the interest on the money.

What if the buyer breaches the contract but refuses to allow the escrow agent to release the funds? In these instances, a seller could sue for further damages more than the deposit because the release of the deposit is a condition of the liquidated damages clause. Sometimes, it's better to just give up the deposit than pay additional attorney's fees and costs to fight it. Obviously, your decision would depend on the amount of the deposit in question.

A real estate salesperson or broker is not an attorney. There are standardized real estate contracts for each state, but as is true with any contract, especially one which will probably be the largest investment in your life, you should have an attorney review and explain it to you before you sign.

References:

http://www.rea lestatekey.com/article/buyer/7 02.htm
http://tms.ecol.net/real estate/ofr_estl.htm

Learn more about this author, Sharon Lea Hill.
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