On the settlement sheet it had due to buyer $xxxx then it had $2,500 as reconciliation of earnest money. Who gets that money and what does it mean?

Asked by poe1771, Chicago, IL Tue Jan 22, 2013

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Bill Eckler, Agent, Venice, FL
Sun Apr 14, 2013
Hey...which response here is "cheesey?"
Any guesses?
0 votes
Frank Muldow…, Home Buyer, Washington, DC
Sun Apr 14, 2013
First of all, there does not need to be any earnest money associated with a real estate sale.

Secondly, over many years, a convention has evolved which states that the usual earnest money payment is 10% of the sale. Remember, there is no requirement for any standard percentage of the sale for the earnest money amount.

Real estate firms like a 10% amount, because they are assured that there is enough in the earnest money escrow account to pay their commissions. Sellers like the $10$ amount because if the buyer defaults, the seller can take the earnest money as liquidated damages.

Now to the closing. The seller's agent (Sponsoring Broker in Illinois) usually holds the earnest money in an the Sponsoring Broker's escrow account, although the earnest money could be held by the seller's or buyer's lawyer (they all have escrow accounts) or a title company.

If the seller's agent holds the earnest money, he writes three checks out of the escrow account and brings them to the closing. If the earnest money is 10% of the sale, and the commission is 6% to be shared equally, the first check is made out to the seller's firm for 3%. (The escrow account held by the seller is separate from his operating account, by law.) The second check is made out to the buyer's brokerage firm for 3% and the third check is made out to the seller for the remaining 4%. The settlement statement will credit the buyer with the 10% earnest money, but the settlement statement will also indicate that 3% shall be paid to the seller's broker and 3% paid to the buyer's broker.

Variations of this procedure occur across the country, and at times the seller and buyer broker's commission checks are cut by the Title Company handling the closing.

Frank Muldowney
0 votes
John Walin, Agent, Libertyville, IL
Wed Jan 23, 2013
Others missed the question. The earnest money goes toward the sellers commission cost when the listing office holds the earnest money. You as a buyer are getting credit of the earnest money toward transaction, but listing office keeps that money as a credit toward the gross commission.

If you like my answer, thumbs up and best answer me, thanks!
0 votes
Ivan Sagel, Agent, Chicago, IL
Tue Jan 22, 2013
Poe,

It is best to have your attorney explain everything on the HUD, before you sign and hand over your money. Call or email me if you need an attorney referral.

Best regards,

Ivan Sagel
312.515.7823
Ivan@atproperties.com
0 votes
Deb Russcol, Agent, Chicago, IL
Tue Jan 22, 2013
The earnest money is generally part of the purchase price that is held by the listing agent's office from time of contract to close. If you had a lender then you likely borrowed only some of the money needed to pay for the property. If you paid cash then you were only told to bring to closing the amount still owed for cost + closing costs. The earnest money belongs to the buyer up to the day of closing when it then goes into the pot with your cash (check brought to closing) or money from your lender.

If you still have a question you should call your attorney.

Deb
0 votes
Joe Schiller, Agent, Chicago, IL
Tue Jan 22, 2013
the seller gets the earnest money
0 votes
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