What is earnest money?
Earnest money is “putting your money where your mouth is”. When an offer is made to a seller on behalf of the buyer, something more than a buyer’s word that they are interested in the property is usually required. This shows the seller that you are a solid buyer who is serious about the offer that is being placed on the table. The higher the amount of the earnest money will show the seller that you are indeed “earnest” about the purchase of the home. Deciding how much money to place in earnest is not a cut and dry answer for any one. This is where a real estate professional can step in and really assist you in making decisions because every offer is unique. A guideline to follow is one to five percent of the offer price. The real estate professional will take your earnest money check with them when they make the offer. The offer specifically states the amount of the earnest money and the check is legally considered part of the offer. Once an offer is accepted the check is deposited int
Earnest money is the deposit that the Buyer is required to provide to the Seller up front, in order to convey that the Buyer is serious about purchasing the property. It is the cash deposit paid by the prospective Buyer to the Seller, as evidence of good faith to complete the purchase transaction. This deposit will be credited to the sales price upon closing but will be forfeited if the Buyer defaults. It ensures that the Buyer is serious about obtaining the necessary financing and fulfilling the other conditions necessary to purchase the house. Without earnest money, some buyers may not use their best efforts to obtain financing and may still be looking for a better deal on other houses. Often, if the Buyer does not proceed with the transaction, the Seller can keep the earnest money as damages.
Typically when an offer to purchase a house is made the buyer will also pay an “earnest money” deposit to show that he or she is serious about buying the house. The sales contract will dictate who holds the earnest money. Usually the seller’s real estate agent will deposit the earnest money in a trust or escrow account until closing. At closing, the earnest money is applied to the purchase price. In the event the sale doesn’t close, the sales agreement generally spells out the conditions under which you would forfeit the earnest money. Generally if the seller meets all the terms of the contract, the seller will keep the earnest money. If the seller does not meet the terms of the contract, you, as the buyer, may receive a total or partial refund of the earnest money.
