What is earnest money, and why do I need to include it with my offer on a property? Sellers see this deposit as a sign you are serious about purchasing a property. It tells the seller, that you, the buyer, are purchasing the property in good faith, and are willing to put money behind your offer up front. The earnest money also keeps buyers from writing purchase agreements on multiple properties.
How much earnest money is required?
There is no specific amount of earnest money required. The general rule of thumb is around one percent of the purchase price. In some cases, less money may be fine, or in multiple offer situations, some buyers will put down more to show how serious they are in order to get the property. The exact amount is something buyers should discuss with their own Realtor.
How do I pay my earnest money?
These days, most earnest money is paid either with a personal check, or by using an electronic funds transfer service. The purchase agreement will state the time frame within the earnest money must be paid and how.
Is my money safe?
All earnest monies are deposited in a broker trust account. Brokers are not allowed to deposit earnest money in their own business bank accounts. At closing, your earnest money deposit will be counted in with your down payment, and/or closing costs. Earnest money is never an extra fee, but rather money going towards what you will owe to purchase the property.
What if I cancel the purchase agreement?
Every purchase agreement states the conditions where the earnest money will be refunded. In most cases if the inspection goes bad, or the property does not appraise for the purchase price, the buyer will be refunded their earnest money. If you cancel for no reason, the seller may be able to keep all or part of the funds. Depending on the situation, buyers and sellers can also negotiate out a deal to split the earnest money.
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