What is earnest money?

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A Buyer typically offers an amount of money called Earnest Money as a good faith deposit towards the purchase of a home. The Earnest Money is deposited at the Title Company and held until closing and is credited to the Buyer for the purchase of the home. An amount around 1% of the contract price is respectable and the greater the amount the greater the negotiating position.

As simple as it sounds, there are many convoluted circumstances that determine which party receives the Earnest Money if the contract is terminated.  During the Option Period, the Buyer can receive the return of the Earnest Money if they terminate without the consent of the Seller. After that time, both Buyer and Seller must agree to how it is handled or it stays at the title company. 

There are various legal remedies and procedures to handle disputes over Earnest Money when a contract terminates. In my opinion unbacked by fact or statistics, the Buyer gets the Earnest Money back 99% of the time unless they are willing to give or share it with the Seller. Of course, this is a contract issue and every party facing contract termination should consult an Attorney for advice. By law, a broker like myself, or agent is not qualified to provide legal advice and opinion.

The reason is an unresolved contract dispute creates a “Cloud” over the title of the property and the Seller is usually unable to sell the property to anyone else until the dispute is resolved. See the FAQ post “What is Earnest Money? Who gets to keep it?” for further discussion.


Notice: This website contains general information about possible legal and financial matters. The information is not advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal or financial advice from your attorney, accountant or other professional legal services provider. If you have any specific questions about any legal and financial matter you should consult your attorney, accountant or other professional legal services provider.