WHAT is the deal with Earnest Money?

Earnest money is money paid to confirm a contract. In Real Estate transactions, the buyer can consider this as a “down payment” towards their closing costs or purchase price, because the earnest money always gets applied to the buyers overall purchase price & closing costs at their Real Estate closing.

 

Man depositing earnest money

 

So, WHY do buyers have to provide earnest money?

Earnest money is put down to confirm a contract as a way to show the buyer’s commitment to the sale contract & it also shows the seller that the buyer is  “financially secure.”

 

HOW much is enough to put down for earnest money?

When deciding how much earnest money is enough to put down, buyers should refer to their Real Estate professional to help decipher how much is enough. There is no right or wrong answer, but the amount of earnest money will vary per transaction. Your Real Estate professional will help you determine the appropriate amount in relation to the purchase price of the contract.

It is not uncommon for a seller to ask a buyer to increase their amount of earnest money when negotiating a contract. Let your Real Estate professional guide you in deciding what is an appropriate amount.

 

WHERE does my earnest money go?

 

Earnest money gets deposited into a 3rd party non-interest bearing account that is often held by the listing agents brokerage. If the listing agents brokerage doesn’t hold earnest money, the buyers agents brokerage can hold it or a Real Estate attorneys office can hold it as well. Either way, the money is always deposited into a non-interested bearing account and wired directly to closing – applying the earnest money directly back to the buyers closing costs or overall purchase price of the home.

WHEN do I have to turn in my earnest money check?

Earnest money is typically due within 2-business days of an executed contract. An executed contract is a contract that has been signed by both parties. Business days are Mon-Friday. If a contract is executed on a Friday, the buyer has until end of day the following Tuesday to turn in their earnest money.

WHO do I make the check out to?

The check is made out to whomever is holding the earnest money, whether it be the listing agent’s brokerage, buyer’s agents brokerage or an attorney’s office.

As someone is going through a Real Estate transaction, they will have many questions. There are NO silly questions when buying or selling a home. Always be sure to ask your trusted Real Estate professional for clarity if you don’t understand something. It is their job to make sure you’re comfortable with the entire process. Buying a home is one of the biggest investments people make in their lifetime, and it’s important to understand the process from start to finish, and beyond!

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