{"id":2049,"date":"2022-07-05T20:12:26","date_gmt":"2022-07-05T20:12:26","guid":{"rendered":"https:\/\/blog.ark7.com\/?p=2049"},"modified":"2023-07-07T16:49:46","modified_gmt":"2023-07-07T16:49:46","slug":"earnest-money","status":"publish","type":"post","link":"https:\/\/ark7.com\/blog\/learn\/glossary\/earnest-money\/","title":{"rendered":"Earnest Money"},"content":{"rendered":"
\n
\n
\n
\n

\"\"<\/h2>\n

What is earnest money?<\/b><\/h2>\n

Earnest money is used by homebuyers to show the seller they\u2019re serious about buying their home. It\u2019s put down before closing and is also commonly referred to as a \u201cgood faith deposit\u201d or \u201cearnest money deposit.\u201d<\/span><\/p>\n

Once a homebuyer and a home seller move into the purchase agreement phase of the real estate transaction, the seller\u2014or their realtor\u2014takes the listing for the home off of the real estate market while the transaction goes through the journey to closing. If the deal falls through for any reason, the seller has the burden to re-list their home and start the process from scratch, often leading to a significant financial and logistical nightmare.<\/span><\/p>\n

Earnest money is intended to protect the seller in the event the buyer backs out. It\u2019s usually around one to three percent of the home\u2019s sale price and is held in an escrow account until the sale is finalized. If the process progresses from start to finish, the buyer can apply the earnest money to their down payment or closing costs.<\/span><\/p>\n

On the other hand, the buyer gets their earnest money back if the deal doesn\u2019t make it to completion and falls through because of an unsatisfactory home inspection or other contract contingencies.<\/span><\/p>\n

When a buyer decides to buy a home from a seller, both parties enter into a contract. But, this contract does not necessarily mandate the buyer to buy the home if there are contingencies because home inspection reports could later reveal issues with the house. What the contract does is ensuring the seller takes the house off the real estate market during the inspection and appraisal process and mark it as \u201cContingent\u201d or \u201cPending\u201d. The earnest money acts as collateral to make taking the house off the market worth it to the seller.<\/span><\/p>\n

Earnest money case study<\/b><\/h2>\n

Irene, Grant, and Oliver are all selling their houses. Max and Molly are buyers in the market and have appointments to view all three homes. Molly loves Irene\u2019s home and its open floor plan, but Max has always wanted a wood-burning fireplace like in Oliver\u2019s house. Both Max and Molly like the fact that Grant\u2019s house has a pool. Here is one example of what could happen:<\/span><\/p>\n