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2017-05-02 21:53:23
Earnest Money: What It Is And Why It Is

Earnest money: What it is and why it is


New home buyers often get lost in a sea of confusing real estate terms, laws, and customs that they wouldn’t know unless they’d previously purchased a home. Earnest money is something that quite often needs explanation. Here is a quick summary of why it’s used and what it’s for.

  • What it is-
    • It’s a 'refundable' deposit that shows the seller you’re serious about purchasing their property.
    • It is to be deposited into your Realtor's brokerage's trust account within 4 calendar days after your offer is accepted. This just means make a check or money order payable to the real estate brokerage and either deliver it to them or to your agent within 4 days.
    • It is usually about $1000-$2000 depending on the price of the home. A higher amount can strengthen your offer and again is refundable up to a point (usually 2-3 weeks which is the 'contingency period').
    • It is held in the brokerage trust account until closing and then applied towards your purchase.
    • If you cancel the contract during the contingency period, it is refunded to you. If you cancel after the contingency period, it is forfeited to the seller. 
  • Why it is-
    • It is required to make a real estate purchase contract legally binding.
  • What NOT to do-
    • Pay the seller directly.
    • Make the payment without receiving a receipt.
    • Deposit your earnest money with a title company. Some Realtors ask you to do this instead of depositing it with their brokerage. The reason this is a bad idea is that if the contract is canceled, the title company can't release the earnest money without authorization from both buyer and seller regardless of what the contract reads. This has caused significant issues in the past. When the earnest money is held by a real estate brokerage, they can release the money according to the contract without the additional step of authorization from both parties.


If you'd like any additional information or if you just have questions, please give us a call! We'd love to help.

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