What is Earnest Money?


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Earnest money

A deposit made by a purchaser of real estate to evidence good faith.

Example – it is customary for the buyer to give the seller earnest money at the time a sales contract is signed. The earnest money generally is credited to the down payment at closing. Until closing a broker must hold earnest money and a separate account.

The amount of earnest money required in each transaction varies. The seller and buyer negotiate earnest money as one of the terms in the contract. Earnest money can be held by the listing or selling broker; again worked out in the negotiation. However, some foreclosure or corporate sellers will require the money be held by the listing broker and that it be delivered in certified funds.

Discuss with your REALTOR® how much earnest money is likely for the price point and area you are searching. Keep in mind this is an upfront cost and you’ll need to have the funds available as soon as you write an offer on a home. Your REALTOR® should help you with the timeline for protecting your earnest money through the special stipulations or contingencies with your offer. Find out what date your earnest money becomes non-refundable (if applicable) if you were to back out of the deal. Otherwise you will see the credit for the earnest money on your settlement statement at closing.

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