The basic concept of earnest money, is to make a deposit with "a third disinterested party" to hold, to assure the completion of the contract by the buyer, Originally all earnest money was placed with a trusted banker or other party that was agreeable to the buyer and seller. In modern practice the broker asking for the earnest money usually has taken the initiative and asked that the earnest money be deposited with him.
Since a large number of real estate transactions today involve the MLS and therefore two brokers, the obvious question arises as to who will hold the earnest money. Minnesota in Minn. Reg. SDiv. 1505 (a)(1) says: "Unless otherwise agreed upon in writing by the parties, the broker with whom trust funds are to be deposited in satisfaction of Section 8, shall be the listing broker."
In the absence of a special statute, the common low would also agree that the listing broker is the proper party to hold the escrow funds, as between the brokers. The cooperating broker has little rights in the transactions, except as they flow through the listing broker. His only right to show the property, write a contract, accept earnest money, or participate in the com missions, flows through the listing broker's contract with the Owner. It is not uncommon for the listing contract between listing broker and Owner to specifically state that the listing broker only shall hold the earnest money.
What happens if the selling broker, in spite of the above, asks the buyer to make the check payable to him? The brokers are paid to negotiate all matters in controversy between the buyer and seller, such as price, terms, possession and who holds the earnest money, The matter should fall back on the selling broker to advise the buyer that the seller would prefer another trustee. The listing broker should never be so anxious to sell, that he ignores the right of his principal to have the trust funds placed as he desires.
CAVEAT: The common law and some state statutes or regulations provide that the listing broker shall have prior right to hold the trust funds, as between the brokers. The buyer and seller have the final say, by agreeing who shall be the holder of the trust funds
Reprinted in part from Living Real Estate Law