What is Earnest Money?

There are many terms that your Realtor will use during the process of buying or selling a home. Today, we will discuss a term that is discussed in every residential real estate sale in our area: Earnest Money.

Earnest money is a deposit that a homebuyer makes to a seller when they make an offer on a home. It is a sign of good faith that the buyer is serious about buying the home and will follow through with the purchase. Earnest money in our area is held in an escrow account until the sale is finalized.

The amount of earnest money that is typically required varies depending on the market, but it is usually between 1% and 3% of the purchase price. In some cases, sellers may ask for more earnest money, especially in competitive markets.

Earnest money can be used for a few different things. If the buyer and seller are able to agree on a price and terms, the earnest money will be applied to the down payment on the home. If the buyer backs out of the deal for any reason other than a contingency that is specified in the contract, the seller may keep the earnest money as a penalty.

Here are some of the most common reasons why a buyer might lose their earnest money:

• The buyer fails to secure financing after the loan contingency date.
• The buyer decides not to go through with the purchase for any other reason that is not specified in the contract.

Earnest money is an important part of the home buying process. It helps to protect the seller from buyers who are not serious about buying a home, and it also helps to ensure that the buyer is committed to the purchase. If you are thinking about buying a home, be sure to ask your real estate agent about the amount of earnest money that is typically required in your market.

Here are some additional things to keep in mind about earnest money:

• The earnest money is held in an escrow account until the sale is finalized. This means that it is not accessible to either the buyer or the seller until the deal is complete.
• The earnest money is typically returned to the buyer if the deal falls through for any reason that is specified in the contract. 
• If the buyer backs out of the deal for any reason other than a contingency that is specified in the contract, the seller may request to keep the earnest money as a penalty.
• The amount of earnest money that is required can vary depending on the market. In some areas, it may be as high as 10% of the purchase price.
• It is important to read the contract carefully to understand the terms of the earnest money deposit. This will help to avoid any surprises if the deal falls through.

Susan Brewer Service First Real Estate (636)936-8600