Florida Real Estate Sales Associate Examination Content OutlineReal Estate Closings and Post-ClosingHard
A real estate transaction is set to close. The buyer's earnest money deposit of $10,000 has been held in an escrow account. On the Closing Disclosure, how will this earnest money deposit typically appear?
- AAs a debit to the seller only.
- BAs a credit to the buyer and a debit to the seller.
- CAs a credit to the buyer only.
- DAs a debit to the buyer and a credit to the seller.
Show answer & explanationAnswer & explanation
Correct answer: C. As a credit to the buyer only.
The earnest money deposit is funds the buyer has already paid towards the purchase. At closing, these funds are applied to the buyer's total costs, reducing the amount of 'cash to close' they need to bring. Therefore, it appears as a credit to the buyer on the Closing Disclosure.
Why the other options are wrong
- A. Incorrect. Earnest money is not a debit to the seller.
- B. Incorrect. While it's a credit to the buyer, it is not a debit to the seller; it's part of the purchase price.
- D. Incorrect. Earnest money is the buyer's money, not a debit to them at closing.
Earnest Money on CD
On the Closing Disclosure, the earnest money deposit is shown as a credit to the buyer, as it represents funds already paid by the buyer towards the purchase, reducing their 'cash to close'.
- Funds held in escrow.
- Applied towards buyer's down payment/closing costs.
- Reduces the amount the buyer brings to closing.
Memory trick: CD's balance: Money in, money out, to settle all doubt.