When buying or building new construction, it is not usually recommended for the contract to state that the earnest money be held by the builder.
Some builders have true trust/escrow accounts, and some do not.
The situation we’re trying to avoid is one where your earnest money deposit is not held in trust like it’s required to be, in which case the builder may be using your funds for building materials or to pay for their holding costs.
Your earnest money deposit must be held in trust to protect it from vanishing in the event the contract doesn’t close or the builder goes bankrupt, etc.
Earnest funds are held in trust partially to protect you, the buyer. They are solely for the purposes of the contract.
The funds should not be used for any other purpose, and since it’s not a default that all builders have true trust accounts, we’d strongly recommend having you and the builder agree to have them held in a real estate broker’s or title company’s trust account.