Earnest Money and Escrow: Alaska Real Estate Exam Guide

Last updated: April 2026

For candidates preparing for the Alaska real estate licensing exam, understanding the strict regulations surrounding the handling of client funds is absolutely critical. The Alaska Real Estate Commission (AREC) places a high priority on consumer protection, making the rules governing earnest money and escrow accounts a heavily tested subject. Whether funds are held in a broker’s trust account or by a third-party title company, licensees must adhere strictly to state statutes to avoid disciplinary action. For a comprehensive overview of all exam topics, visit our Complete Alaska Exam Guide.

What is Earnest Money?

Earnest money is a "good faith" deposit made by a buyer when submitting an offer to purchase real estate. It demonstrates to the seller that the buyer is serious about the transaction. While earnest money is not legally required to create a binding contract—mutual promises and the purchase price serve as the legal "consideration"—it is standard practice in almost all Alaska real estate transactions.

In Alaska, earnest money typically ranges from 1% to 3% of the purchase price, depending on the local market conditions. If the transaction closes successfully, the earnest money is credited toward the buyer's down payment or closing costs. If the deal falls through due to a contingency (such as a failed home inspection or financing denial), the earnest money is generally returned to the buyer. However, if the buyer breaches the contract without legal justification, the seller may be entitled to keep the earnest money as liquidated damages.

Typical Earnest Money % in Alaska Real Estate

Escrow and Trust Account Requirements in Alaska

Under Alaska Statutes Title 08, Chapter 88 (AS 08.88) and the Alaska Administrative Code (12 AAC 64), real estate brokers are strictly regulated regarding how they handle money belonging to others.

Broker Trust Accounts

If a real estate brokerage chooses to hold earnest money, the broker must maintain a separate trust account in a recognized financial institution physically located in Alaska. The account must be explicitly designated as a "trust account."

Timely Deposit: According to 12 AAC 64.200, a broker must deposit earnest money into the trust account within a reasonable time, which is legally interpreted as no later than five (5) business days after the real estate purchase agreement has been signed by all parties, unless the contract explicitly states otherwise.
Record Keeping: Brokers must keep meticulous ledgers for every transaction, showing the receipt and disbursement of all funds. These records are subject to audit by the Alaska Real Estate Commission.

The Role of Title Companies in Alaska

In modern Alaska real estate practice, it has become increasingly common for brokerages to bypass holding earnest money altogether. Instead, the buyer's funds are deposited directly with a third-party escrow agent, typically an Alaska-based title company. Even when a title company holds the funds, the real estate licensee is still responsible for ensuring the funds are delivered to the escrow agent promptly and in accordance with the terms laid out in the purchase agreement. You can learn more about how these agreements are structured in our guide to Alaska contract essentials and elements.

Commingling vs. Conversion: The Cardinal Sins

The real estate exam will frequently test your understanding of two illegal practices related to trust funds: commingling and conversion. Committing either of these acts violates the Alaska fiduciary duties of agents and can result in immediate license revocation, heavy fines, and criminal charges.

Commingling

Commingling is the act of mixing client funds with the broker’s personal or general business operating funds. For example, if a licensee receives a $5,000 earnest money check from a buyer and deposits it into their personal checking account "just for the weekend" before moving it to the trust account, they have committed commingling. To prevent accidental commingling, brokers are allowed to keep a small amount of their own money (usually up to $100) in the trust account solely to cover bank service charges.

Conversion

Conversion is a step beyond commingling; it is the actual use or spending of client trust funds for personal or business purposes. It is effectively theft. If a broker uses earnest money from a trust account to pay the brokerage's monthly utility bill—even if they intend to replace the money the next day—they have committed conversion.

The Lifecycle of Earnest Money in an Alaska Transaction

To fully grasp how escrow works for the exam, let's walk through a practical scenario:

The Offer: The buyer, Sarah, makes an offer on a home in Anchorage for $400,000 and writes a $4,000 earnest money check payable to "First Alaska Title Company."
The Delivery: Sarah's real estate licensee receives the check. The licensee must safeguard this check.
The Acceptance: The seller accepts and signs the offer on a Tuesday.
The Deposit: The licensee must deliver the check to the title company (or the broker's trust account, if applicable) promptly, ensuring it is deposited within the legally required timeframe (typically five business days).
The Closing: At closing, the title company applies the $4,000 toward Sarah's closing costs and down payment.

Handling Earnest Money Disputes

Not all transactions make it to the closing table. If a contract is terminated, the release of earnest money must be handled carefully. A broker or escrow agent cannot simply guess who deserves the money; they must have written authorization.

In Alaska, if a dispute arises over who gets to keep the earnest money, the broker or title company holding the funds cannot legally disburse them until one of the following occurs:

Mutual Written Agreement: Both the buyer and seller sign a document (often called a Mutual Release) detailing exactly how the funds should be distributed.
Court Order: A judge issues an order directing the disbursement of the funds.
Interpleader Action: If the parties cannot agree and a lawsuit is imminent, the broker or escrow agent can file an "interpleader action." This legal process allows the holder of the funds to turn the money over to the court, essentially saying, "We make no claim to this money; let the court decide who gets it."

Note: The rules for handling earnest money differ significantly from how property managers must handle residential security deposits. To understand the separate rules governing property management funds, review our guide on Alaska landlord-tenant law essentials.

Frequently Asked Questions (FAQs)

1. How long does an Alaska real estate licensee have to deposit earnest money?

Under 12 AAC 64.200, earnest money must be deposited into a broker's trust account (or delivered to the designated escrow agent) within a reasonable time, which is standardly interpreted as within five (5) business days following the final acceptance of the contract, unless the parties agree otherwise in writing.

2. Is earnest money legally required to make a real estate contract valid in Alaska?

No. While earnest money is customary and shows good faith, it is not a legal requirement for a valid contract. The legal "consideration" in a real estate contract is the mutual exchange of promises (the promise to buy and the promise to sell) and the purchase price.

3. Can an Alaska real estate salesperson hold an earnest money check in their personal safe?

No. A real estate salesperson must immediately turn over any earnest money checks received to their employing broker or deliver them directly to the designated escrow company as instructed by their broker and the purchase agreement.

4. What is the difference between commingling and conversion?

Commingling is the illegal mixing of a client's funds with a broker's personal or business funds. Conversion is the illegal act of actually spending or using those client funds for the broker's own purposes. Both are severe violations of Alaska real estate law.

5. What happens to the earnest money if the buyer and seller cannot agree on who gets it after a deal falls through?

If there is a dispute, the broker or escrow agent holding the funds must keep them in the trust account. They cannot release the funds without a signed mutual agreement from both parties or a court order. If the standoff continues, the holder of the funds may file an interpleader action to surrender the money to the court.