Illinois Leasing Agent Practice Exam

Which of the following types of funds might be included in escrow?

1. Utility payments

2. Security deposits and earnest money

3. Closing costs

4. Owner's property taxes

The correct answer is: Security deposits and earnest money

In the context of real estate transactions, escrow is a neutral third-party account where funds are held until certain conditions are met, ensuring that both parties fulfill their obligations. Security deposits and earnest money are commonly placed in escrow. Security deposits protect landlords against tenant damages and are typically held until the tenant vacates the property. Earnest money, often a part of a real estate transaction, demonstrates the buyer's commitment to purchasing a property and is held by the escrow agent until the deal is finalized. Once all conditions of the sale are met, these funds can be applied toward the purchase price or returned to the tenant, depending on the situation. Utility payments, closing costs, and owner's property taxes typically do not fall under escrow in the same way. Utility payments are generally the responsibility of the tenant or homeowner and are not usually collected in the upfront transactions. Closing costs are settled at the closing of the sale and are not held in escrow prior to closing. Owner's property taxes, while important, are usually managed separately and are not part of the funds held in escrow during the lease or sales process. This is why security deposits and earnest money are considered the most relevant types of funds that might be included in escrow.