Earnest money is a deposit that a home buyer provides to a seller as a show of good faith during the home buying process. The deposit is typically made when the buyer submits an offer to purchase a property, and is held in escrow by a neutral third party, such as a title company or a real estate attorney, until the sale is complete.
The amount of earnest money can vary depending on the purchase price of the home and local market conditions, but it is typically 1-3% of the purchase price. For example, if you are making an offer on a home that is priced at $300,000, you might provide an earnest money deposit of $3,000-$9,000.
The purpose of earnest money is to demonstrate to the seller that the buyer is serious about purchasing the property and to give the seller some protection in case the buyer backs out of the deal. If the sale goes through as planned, the earnest money deposit is applied towards the down payment and closing costs.
If the sale does not go through, the fate of the earnest money deposit will depend on the terms of the purchase contract and the reason for the sale falling through. In many cases, the deposit will be returned to the buyer, but it can be forfeited if the buyer backs out of the deal for reasons specified in the purchase contract, such as failing to get financing or failing to complete the sale within a specified period of time.
It’s important to understand the terms of the purchase contract regarding earnest money deposit and to be aware that they may vary depending on the state and the local real estate market. It’s always a good idea to consult with your real estate agent and attorney to understand the details of the contract before making an offer.
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