Understanding Earnest Money Deposits

Earnest money is basically a cash deposit made by the buyer to show they are serious about purchasing the property. The more earnest money they promise in their offer, the more serious they are.

Key things to know

• The amount of earnest money is usually between 1% and 3% of the purchase price, however it can vary depending on circumstances and the market.
• The earnest money is provided by the buyer quite quickly (within 5 days) after both the buyer and seller sign the purchase agreement (which is also known as “going binding” or being “under contract”).
• The earnest money is held in an escrow account until closing. At closing, it is applied to the buyer’s down payment or closing costs at that time.

It’s their job

Buyers pay their REALTORs because they work hard to protect your earnest money by making sure that all parties meet all deadlines. If the clock is ticking and the other agent looks like they might not be making good on their promises, a good agent sends a termination request to protect your earnest money! That’s because the seller gets to keep the earnest money if the buyer backs out of the deal without a valid reason or misses the timeframe that is called out in the contract. Deadlines are vital!

On the other hand, if the sale falls through due to issues like a failed home inspection or financing problems, the buyer is still entitled to a refund of their earnest money as long as they are within the contingency timeline.

More Real Estate terms

• Due Diligence
• Escrow