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Earnest Money Education

As an interested buyer on a property it’s custom to put down earnest money. It’s a sign of good faith that you are serious about the real estate transaction. Earnest money is typically paid within one to three days after an accepted offer.


Why is earnest money required? The earnest money is a sign of good faith that the buyer has a genuine interest in the property and at the same time, it protects the seller.


What does the seller need protecting from? The seller is required to take the home off the market after they accept a written offer. However, because an inspection hasn’t been completed yet, the buyer still has no legal obligation to purchase the property.

How much are we talking here? Usually the buyer and the seller will negotiate the amount to be deposited.  It can be a percentage of the sale or a fixed amount. Factors that can affect the number are: how serious the buyer is (they may offer to put down a higher amount), how fast the buyer can close, city requirements and how hot the market is.


What happens to the money? The earnest money is typically paid by certified check, personal check and goes or gets wired, into a trust or escrow account. These accounts can earn interest. Be advised that if interest earned exceeds $5000 the buyer will have to fill out a W-9 tax form and obtain the interest from the government.

How does the buyer benefit? Upon closing, the deposit is put towards the buyers down payment on the home.


If you have questions about the house market or the home buying or selling process please contact us!



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