Earnest Money

What does Earnest Money mean?

It is the initial good faith deposit that accompanies an offer and or purchase agreement. There is no specific deposit requirement but typically most buyers put down 1% to 5% of the purchase price in order to secure the contract. Since there is no set amount, earnest money deposits vary from markets in the USA. In sellers’ market when inventory is limited, many buyers put down larger earnest money to be competitive. And the same is true in a Buyers’ market when a buyer may put down higher deposit to entice seller to accept their low offer but the local market conditions determine how much one should consider putting down.

If a deal is struck, the earnest money is applied towards the down payment (the portion of the home's sales price that is paid upfront and not financed as part of the mortgage) and closing costs. The deposit is put in an escrow account (or Trust) for safekeeping, not the seller directly. The higher initial amount suggests a serious buyer. It is to help demonstrate good faith to the seller. If offer is accepted, the seller takes the home off the market and reserves it for you until contingencies, if any are resolved. If the deal falls through, the earnest money is returned to the buyer and the home is put back on the market.

Please note, if both the parties agree to the deal terms, and then if the buyer backs out, the earnest money does not have to be returned to the buyer.