Earnest Money 101
When a buyer puts down earnest money on a property, they are sending signals about their level of interest and qualifications to purchase that property. As a seller, the more skin the buyer has in the game, the more likely they are to follow through with the closing. No earnest money sends the signal that the buyer has no money!Sellers’ Insurance Policy
As a seller, earnest money is your insurance policy against the buyer walking away from the deal without good reason. (The definition of “good reason” is a legal discussion, and therefore inappropriate to address here.) If they do walk away from the deal without good reason, they risk losing the earnest money through legal proceedings.Delivery Timeframe
Earnest money is most often delivered within a few days of the offer being accepted, as outlined in the offer to purchase. Sometimes earnest money can accompany the offer itself, which can indicate that the potential buyer is highly motivated.How Much?
There are no set rules are far as how much earnest money should be given. For transactions up to about $100,000, earnest money of $500 is a popular amount. For anything over $100,000, we usually see earnest money of at least $1,000. Perhaps 1% of the purchase price would seem to be a good rule of thumb.Who Holds the Money?
Earnest money is often held in a special trust/escrow account by the title company. There are very strict regulations governing how and where earnest money can be held. Sometimes one of the real estate companies/brokers involved in the transaction will hold the earnest money. However, it seems as though fewer and fewer real estate companies are offering this as a service. All it means to buyers and sellers is that you may need to sign an escrow agreement outlining the terms on which the money will be released. Assuming everything goes smoothly, the earnest money amount will be deducted from the amount owed by the buyer at closing.Earnest Money Disputes
If there is a dispute over earnest money, the buyers and sellers should first attempt to resolve the problem in an amicable way. Generally speaking, real estate brokerages who do hold earnest money will not disburse it without a written agreement telling them how to disburse the money. If the buyer and seller can come up with an agreement, great! If not, the money will most likely sit in the trust account until legal proceedings have determined who should get the money.Contact Us
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