WHAT IS EARNEST MONEY?

Earnest money is the monetary advance by a buyer of part of the purchase price to indicate the buyer’s intention and ability to carry out the contract and close on the property. The earnest money is typically deposited at the time the buyer executes a purchase contract and is held in escrow by a 3rd party title company, closing attorney or closing agent. The amount of earnest money deposited in a transaction is a negotiable deal point between the buyer and the seller, but is usually around 2-5% of the purchase price.

Earnest Money typically has a deadline when it becomes non-refundable and converts to the property of the seller if the contract is not cancelled by a certain date that is usually tied to a specific deadline that the buyer has, such as the Inspection Objection Deadline, or the Loan Objection Deadline, or Appraisal Objection Deadline, etc.

If the deadline or objection that is tied to the Earnest Money is waived or passed, and the buyer continues to move forward to close on the property, the Earnest Money is typically credited toward the purchase price amount and is often included as a portion of the buyer’s down-payment if they are financing the property. If the buyer is paying cash for the property, the earnest money would also go towards the total purchase price.

Earnest money is also used to demonstrate to the seller that the buyer is serious about purchasing the property and is willing to deposit money up front and before they even engage in their official due diligence.