On a closing statement, how is the earnest money paid by the buyer classified?

On a closing statement, the earnest money paid by the buyer is classified as a credit to the buyer. This reflects the fact that the earnest money is already an amount contributed by the buyer toward the purchase price of the property. As a result, it reduces the total amount the buyer owes at closing, acting essentially as a prepayment on the purchase.

This classification is important in the context of a real estate transaction, as it accurately represents the flow of funds involved. The earnest money serves to assure the seller of the buyer's commitment, and once the transaction reaches closing, that amount is applied to the buyer's payment. Therefore, it functions as a credit to the buyer, lowering the total amount they need to pay out of pocket at the time of closing.

In contrast, the other classifications such as debit to the buyer or credit to the seller are not applicable for the earnest money because they do not accurately portray the nature of this transaction. The earnest money is not an additional cost to the buyer nor is it money that the seller receives in addition to the purchase price—it is simply a portion of the total sale price that has already been paid upfront.