AREC Proposed Earnest Money Rule
Posted on 08/17/2026
The Alabama Real Estate Commission (AREC) is considering a significant rule change regarding how earnest money funds are handled when a real estate transaction fails to close.
The Alabama Association of REALTORS® (AAR) has expressed strong concerns over the proposed amendment to Rule 790-X-3-.03, submitting an official comment letter to the Commission detailing the risks this policy poses to brokers, agents, and consumers alike.
Here is a breakdown of what the proposed rule entails, why industry leaders are pushing back, and how you can take action before the upcoming vote.
Understanding the Proposed Earnest Money Rule
Under current practice, when a transaction falls through and a dispute arises, trust funds are held neutral until both parties sign a mutual release agreement or a court resolves the issue.
The proposed rule change would drastically alter this dynamic:
Automatic 90-Day Disbursement: Brokers holding disputed earnest money would be required to return the funds to the buyer after 90 days from the scheduled closing date, unless the parties reach a mutual agreement or court proceedings are officially initiated.
Mandatory Contract Disclaimers: Purchase agreements would need to include specific language notifying buyers and sellers of this automatic 90-day return policy.
Extended Timelines for Existing Contracts: For contracts executed before the rule takes effect, the timeframe for automatic buyer return extends to one year.
Why AAR and Brokers Oppose the Change
While a clear resolution process for earnest money disputes is needed, industry advocates argue this specific proposal creates severe legal and operational issues:
Strips Broker Neutrality: Qualifying brokers are escrow agents, not legal arbitrators. Forcing brokers to release funds automatically overrides contractual terms agreed upon by the buyer and seller.
Increases Legal Exposure: Forcing a broker to disburse funds without mutual consensus opens escrow holders up to direct legal claims from aggrieved sellers who believe the buyer breached the contract.
Disregards Contract Terms: Purchase agreements frequently outline explicit remedies for default. A blanket administrative rule forcing a refund undermines private contract rights.