What happens to earnest money at closing? The attorney or title company puts earnest money towards either the closing costs or the down payment. If everything has gone smoothly an escrow money held the money throughout the process, and they continue to keep the money right up until the closing. 

  • The escrow agent take earnest money goes out of the account and is puts towards home purchase 
  • You may release earnest money prior to closing in some extraordinary circumstances 
  • At closing the money is released for one several possible uses 

What happens then? The attorney or title company call for the money, and the agent releases it to their care. They apply he funds to the closing costs or the down payment at the point. 

Where Does Earnest Money Go at Closing 

At closing earnest money goes towards the closing costs or the down payment. It sits in the escrow agent’s account right up until the day of closing. This is because it is possible that something may go wrong, even at the closing. Therefore, everyone wants the neutral, third-party agent to hold the money as long as possible. When it is time to close the house, the attorney calls for the funds to settle the transaction.  

When Can the Seller Keep Earnest Money? 

The seller may keep earnest money for two reasons: 

  • The buyer breaches the contract 
  • The deal closes 

In the first instance, the buyer walks away from the deal without a good reason. They may get cold feet or have an emergency outside the scope of the contingencies in the contract. If they back out of the deal in accordance with any of these clauses, then the buyer still gets their money back. 

In the second case, the deal closes, and the money goes toward the down payment or the closing costs. In this case, the seller gets the money indirectly. 

Seller Refuses to Release Earnest Money  

When a real estate transaction falls through the seller may refuse to release the earnest money deposit. When there is a dispute over whether the buyer breached the contract, the law requires the escrow agent to hold the money until the matter is resolved. 

While this may be frustrating to both sides, it is the fundamental reason to hold earnest money in escrow. According to NOLO there are three steps to take when there is a dispute: 

  • Consult the contract 
  • Attend mediation or arbitration 
  • Take the matter to court 

These are escalating solutions to the problem. Sometimes you may be able to clear up the matter simply by sitting down with our attorney and clarifying the language of the contract. Often, though, emotions run high, and this simple step will not solve the problem. Arbitration is the next logical step. Most time mediation solves the problem. Unfortunately, there are a few cases where you must take the matter to court. This should be a last resort to settle your dispute, though. 

Releasing Earnest Money Prior to Closing  

In my years selling real estate I never saw earnest money released to the seller prior to closing. The only time I saw these funds released before closing was if the deal fell apart, and the buyer clearly breached the contract. 

Having said that, a hot seller’s market may encourage buyers to sweeten the deals in creative, and sometimes foolish, ways. Rainier Title points out that some buyers pay the seller’s closing costs, wave contingencies, and even pay moving expenses. Finally, some agree to release earnest money before closing to make their offer stand out. Typically, they release the funds at one of two points during the process: 

  • After all the contingencies are met 
  • Upon mutual acceptance of the contract 

The first situation is late in the process, but it is still risky. Things can go wrong, even on closing day. The second is highly risky. To release funds before even a home inspection is very aggressive, and you should only do this in an extreme situation. 

Who Keeps Earnest Money After Closing? 

Who keeps earnest money after closing? The seller or the professionals involved in the transaction. The money is put towards the buyer’s cash to close, and it may go towards the down payment. In this case, it goes into the check that the seller gets at closing. On the other hand, it may go towards closing costs. In this case it will be used to pay the attorney, the mortgage company, or the real estate agent. 

Final Thoughts

What happens to earnest money at closing? If the attorney or title company handle the transaction properly, they meticulously document where every penny goes. They keep the funds in escrow right up until the closing no matter how long the due diligence process takes to protect all parties involved, not just the buyer and seller, but the real estate agents and themselves as well. 

Any time a real estate deal concludes there is a detailed closing statement that shows exactly where all the moneys went. Earnest money appears on this document, and it shows down to the penny how it is used. If you have trouble reading the document, make sure you get the attorney to explain everything to you before you sign the final agreement.