A person who’s purchasing a home may encounter the need to put an earnest money deposit down as a way to show the seller that they seriously intend to purchase the property. This is typically placed into a dedicated escrow account shortly after the offer on the home is accepted.
In many cases, earnest money is applied toward the down payment or closing costs. The amount can vary considerably, depending on the state of the market and the purchase price of the home. It’s often a very small percentage of the value of the home. Some homebuyers offer earnest money to make their offer more attractive to buyers, which is sometimes necessary in competitive markets.
Contingencies and earnest money
The terms and conditions of the earnest money are located in the purchase agreement. These are called contingencies. Contingencies spell out when earnest money can be kept by the seller and when it must be returned to the buyer if the sale doesn’t happen for some reason.
Some common contingencies include financing, property inspections and appraisals. It’s critical that the terms of the earnest money are spelled out clearly so there isn’t room for dispute about what should happen with the funds.
Earnest money isn’t held by the seller or the purchaser. Instead, a third party, such as an escrow agent will hold the funds to help offer protection for both parties. This is a critical part of the real estate transaction.
Anyone in the process of purchasing a home should ensure they understand their rights and responsibilities. Having experienced legal guidance can help.