What is Earnest Money?

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Earnest money is just money you put down as a good-faith gesture that you’re serious about buying a house. The buyer’s earnest money shows the seller you mean business when it comes to buying their house. It gives the seller peace of mind to go forward into the next steps of the transaction because you have some skin in the game. It proves you’re sincere—or earnest—about this purchase. While you wait to close on your house, the money is deposited into an escrow account with the seller or buyer’s broker, title company or escrow company. An escrow account is a neutral, third party account that holds the earnest money until the transaction between the buyer and the seller is complete. The amount varies from as little as $500 to thousands of dollars.

If everything goes the way it’s supposed to, the earnest money will get folded into your closing costs. But you’ll need to be careful and read your contract because there are several ways you could lose your earnest money deposit. Typically, that could occur is you back out of the transaction without cause. Make sure your agent builds contingencies into your contract so you can get back your earnest money if something goes sideways.

Common reasons that buyers can get their earnest money refunded include:

  • The home doesn’t get appraised at the offer amount. Maybe you make a $200,000 offer on a home that turns out to be worth only $150,000.
  • The home doesn’t pass the home inspection. The home could have significant structural damage or need a new roof and you may not be able to come to an agreement with the seller to make the repairs.
  • You can’t get financing. Things happen. You might encounter another hiccup in the finance process.

The best way to navigate the home buying process is to use a licensed real estate professional. If you are considering buying or selling a home, feel free to reach out to one of our licensed agents at Right Size Realty.

Rodney McCoy 601.383.1019  rmccoy@rightsizerealty.com
Jamie McCoy 601.259.0461  jmccoy@rightsizerealty.com
Andrew Tyre 601.842.4270  atyre@rightsizerealty.com
Allen Wilson 601.985.9231 awilson@rightsizerealty.com
Paul Tyre 601.709.9002 ptyre@rightsizerealty.com
Dianne Nelson 601.421.7094  dnelson@rightsizerealty.com

References:
Ramsey, D. (2020). RAMSEY Retrieved from: https://www.daveramsey.com/blog/what-is-earnest-money