What is "Earnest Money"?

As a Realtor, one of the most common questions I get from clients is about earnest money. Earnest money is a payment made by the buyer at the time of an offer to purchase a property, and it’s an important part of the home buying process. In this blog post, I’ll explain what earnest money is, how it works, and why it’s important.

What is earnest money?

Earnest money is a deposit made by the buyer at the time of an offer to purchase a property. It’s a way for the buyer to show the seller that they are serious about buying the property. The amount of earnest money is typically a percentage of the purchase price, and it can vary depending on the local real estate market and the specifics of the transaction.

How does earnest money work?

When a buyer makes an offer on a property, they typically include an earnest money deposit. This deposit is held in an escrow account until the transaction is completed, at which point it is applied towards the purchase price of the property. If the transaction falls through for any reason, the earnest money may be refunded to the buyer, depending on the terms of the contract.

Why is earnest money important?

Earnest money is important because it shows the seller that the buyer is serious about purchasing the property. When a seller receives an offer with a significant amount of earnest money, they are more likely to consider the offer seriously and may be more willing to negotiate on price or other terms of the sale.

Earnest money also provides a measure of protection for the seller. If the buyer breaches the contract or fails to complete the transaction for any reason, the seller may be entitled to keep the earnest money as compensation for the time and resources they’ve invested in the sale.

In conclusion, earnest money is an important part of the home buying process. It shows the seller that the buyer is serious about purchasing the property, and it provides some measure of protection for the seller in case the transaction falls through. As a Realtor, I always recommend that my clients include a significant amount of earnest money in their offers, in order to strengthen their position as a serious buyer.