Broker receives earnest money $10,000 and later withdraws $7,000 to operating account. This transaction is:

Even if the broker is entitled to a commission, withdrawing funds from the earnest money deposit without the buyer's consent is not permissible. Commissions are typically paid from the sale proceeds at closing, not deducted from earnest money held in trust. This choice misunderstands the fiduciary responsibility brokers have regarding client funds.

While the action does violate regulations governing trust accounts, this choice is too broad. The specific issue here is illegal conversion, which is a violation of state laws more than federal regulations. Thus, while related, this option does not accurately capture the nature of the wrongdoing.

Informing the seller does not authorize the broker to withdraw earnest money for operational purposes. The funds are meant to secure the buyer's commitment and should remain in escrow until the closing or mutual agreement, regardless of any communication with the seller.