What is Earnest Money?

In competitive markets, earnest money can be used to show that you are a serious buyer. But what is earnest money really, and how does it protect sellers? Here’s what you should know.

What is it? Essentially a good faith deposit, earnest money is a sum you put down to demonstrate that you are serious about purchasing a home. In most instances, this sum acts as a deposit on the home you’re looking to buy.

How it works: Whenever a seller and buyer come to an agreement, the seller usually takes the home off the market. If the deal falls through, the seller must relist the property and start the whole process again. Earnest money helps protect the seller if the home buyer backs out.

How much is it? Most often, earnest money amounts to 1 – 3% of the home sale price. The exact amount will depend on what’s customary in a specific market. The money is generally held in an escrow account until the deal is closed. If all goes well, earnest money is applied to the down payment or closing costs. If not, the money may be returned to the buyer or retained by the seller, depending on who is responsible for the deal falling through.

Feel free to reach out with any questions. I’m here to assist you every step of the way!