Question 26

The earnest money deposit is typically credited to the buyer at closing on a settlement statement.

The earnest money deposit is applied as a credit to the buyer at closing, which reduces the amount they need to bring to the closing table.

A) Debit the seller

Debiting the seller would imply that the seller is being charged for the earnest money deposit, which is incorrect. The earnest money is not a cost to the seller; instead, it is a financial assurance from the buyer that is applied to their costs at closing.

B) Debit the buyer

Debiting the buyer would suggest that the earnest money deposit is an additional cost they must pay at closing, which is inaccurate. The earnest money serves as a pre-payment that is credited to the buyer's total amount due at settlement.

C) Credit the seller

Crediting the seller implies that the earnest money deposit is being applied to the seller's financial benefit directly, which does not reflect how the earnest money functions. The deposit is meant to secure the buyer's intent to purchase, not to benefit the seller financially in this manner.

D) Credit the buyer

Crediting the buyer is correct because the earnest money deposit is applied to the buyer's closing costs, reducing the total amount they owe at closing. This reflects the buyer's investment in the property and ensures that they receive the benefit of their deposit.

Conclusion

Option D is the correct answer as it accurately represents the application of the earnest money deposit at closing. All other options misinterpret the nature of the earnest money and its role in the closing process, as they either incorrectly assign costs to the seller or misrepresent the financial responsibility of the buyer.