Moot Issue . . . Unless the Deal Hiccups
One of the biggest concerns residential home Buyers have is who holds their earnest money check.
Due once there is an accepted Purchase Agreement, earnest money typically is equivalent to 2% – 5% of the purchase price, and plays a dual role: a) it signifies the Buyer’s financial wherewithal/commitment to the deal; and b) it serves as what lawyers call “liquidated damages” in the event the Buyer backs out late in the game (that is, it’s what the Seller gets to keep as compensation for losing anywhere from 4-10 weeks of market time).
Usually, the check is held in the trust account of the listing agent’s broker.
So, in deals where I represent the seller, the earnest money is deposited into Edina Realty’s trust account, and stays there until closing — whereupon it is applied to the purchase price (technically, it’s treated as a credit).
And that’s that, in the vast majority of transactions.
Smooth vs. Broken Deals
Where the plot thickens is if the deal doesn’t close.
If the Buyer decides to cancel based on the inspection, or can’t get financing (either because the home doesn’t appraise, or the Buyer’s finances don’t check out), most Purchase Agreements provide that the Buyer promptly gets their earnest money back. See, “You Mean, There’s No Deal AND They Get Their Earnest Money Back??”
And they do . . . at least when the money is held in the trust account of Edina Realty (or Coldwell Banker Burnet, or any number of other reputable brokers).
Fly-By-Night Brokers
Unfortunately, there are sketchy brokers out there where Buyers can legitimately worry — that their funds will be commingled, misappropriated (fancy name for “stolen”), or simply lost.
It’s also the case that For Sale by Owners (“FSBO’s”) usually don’t have trust accounts — and may not be so obliging about returning the Buyer’s earnest money should the deal unravel.
In such cases, savvy Buyers (or their agents) can and do specify that the Buyer’s earnest money be deposited into their Broker’s trust account.
In my experience, sellers who want to sell will go along.
P.S.: Who gets the interest on the earnest money until closing?
First off, which banks pay interest any more??
However, whatever money accrues in the brokers’ trust account — at least in Minnesota — goes towards a relief fund for parties who have suffered losses in real estate transactions.