What is Earnest Money?
Earnest money is a deposit made when making an offer on a home to show the seller your serious intention to purchase their property. While not a required part of a home offer, it is a common practice in real estate transactions in the United States.
How Earnest Money Works
When making an offer on a home, earnest money is typically included to demonstrate genuine interest in buying the property, even with contingencies in place such as selling your own home, securing financing, or passing a home inspection. If the sale falls through, earnest money can be distributed to either the buyer or seller based on the terms of the contract.
If a buyer backs out of the contract for reasons not covered by contingency, such as failing a home inspection, the earnest money may be forfeited to the seller. However, if there are legitimate issues found during inspection or other covered reasons, the earnest money is typically returned to the buyer.
It's important to know who is holding your earnest money deposit, as it could be your broker, the seller's broker, or a third party like a bank or escrow company. If a dispute arises over the distribution of earnest money, it may need to be resolved in court.
Ultimately, earnest money serves as a symbol of a buyer's commitment to purchasing a home and can be a key factor in the successful completion of a real estate transaction.
