Everything you  Need to Learn about Earnest Money

You're not alone if you're confused by real estate jargon. Technical terms like earnest money, option fee, down payment, escrow, and closing may feel intimidating to the first-time home buyer. Learning these terms helps avoid misunderstandings during the home purchase agreement. What follows here is everything you need to know about earnest money and an earnest money deposit.

What is Earnest Money?

Earnest money is used while buying and selling a house. It is the sum of money the buyer deposits to get into a purchase agreement with the seller. It is also called a “good faith deposit.”

What Role Does Earnest Money Play?

Earnest money essentially works as an assurance to the seller for his consideration of the buyer's offer. It demonstrates the buyer is serious about following through with the deal and shows they are a strong candidate for buying the home.

Is Earnest Money Required?

Technically, you can get into the purchase contract without issuing earnest money. Also, it is not a requirement to get into a purchase agreement to buy a house.

How Much Earnest Money Should You Put Down?

There is no set rule for the earnest money amount. The amount is highly negotiable, and often depends on whether it is a buyer's market or a seller's market at the time. Typically, it's about 1% to 3% of the sale price.

Can Seller Refuse the Release of Earnest Money?

The seller can refuse to release the earnest money if there is a dispute on who is at fault for the deal's fallout. Since a third party holds the money, buyers do not have access to it.