How to earnest checks work?

Asked by Jim, Woodridge, IL Tue Aug 19, 2008

I gave my realtor a $1000 earnest check when I submitted my offer. The check was made out to the sellers agent.

If the offer is accepted, when will the check be cashed and how will it be used? As I understand it, the check is to be used for my closing costs, but if that is the case, why did I make it out to the sellers agent?

I also heard that in an FHA loan, the buyer can not get money back at closing. So what happens if, say my closing costs are $2000 and the tax credit that the seller gives me is $1300. Therefore I only owe $700, yet my check is for $1000. Do I lose that $300?

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Scott Godzyk, Agent, Manchester, NH
Tue Aug 19, 2008
The answers before hit it right on the head, the listing agent always holds the escrow deposit. It can be applied as down payment or closing costs at the closing, the closing company can indeed refund you any overage that you paid. If you only needed to pay $700 and you paid $1000 you would get back $300. It is your money afterall. It is not the same as say the seller crediting you an extra $1000 and you getting a $2000 check at closing. Good luck with your purchase.
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Laura Karamb…, Agent, Downers Grove, IL
Tue Aug 19, 2008
Elvis and I must have been typing at the exact same time. The good news is we both had the same answers (LOL).
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Laura Karamb…, Agent, Downers Grove, IL
Tue Aug 19, 2008

Your earnest money check gets made out to the Listing Broker, which is the company the listing agent works for. The earnest money check never gets made out to an agent. The check is deposited into the broker's account within a day or two. If the money is deposited and the deal didn't close because of attorney review, mortgage contingencies, etc., you and the seller would sign a "cancellation" and "release of earnest money" and that earnest money would be returned to you from the listing broker.

The earnest money will be credited to you on your closing statement (HUD) and is taken out of the funds you need to bring to closing. Besides closing costs and tax credits you also have a certain amount of money as your deposit ...the money you are putting down towards your loan. However, if the money you deposited was an overage...I've seen people bring too much to closing, the title company will issue you a check which is not the same as getting cash back at closing.
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Alan May, Agent, Evanston, IL
Tue Aug 19, 2008
In most cases, that earnest money comes back to you at the closing table.

The check is made out to the listing agency, so that they may hold that money (typically in an interest bearing account if there's enough money), against the possibility that you might decide to walk away from the deal.

That check will be cashed, as soon as you've reached an agreement (signed and delivered) on your contract. If you've got more earnest money, than expenses at closing, any overage would be returned to you. This is NOT the same as the buyer getting "money back" at closing. This would just be the return of an overpayment.
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