Here are the basics of how earnest money works in a transaction.

Earnest money is money a buyer puts down at the beginning of the transaction, showing good faith that they will indeed purchase the home. In our real estate market, we commonly see about 1% earnest money (i.e. 1% of the sale price). This isn’t more money on top of what you’re already paying; it’s money set aside that will be put toward your closing costs. In our market, that money is generally held by the broker or title company representing the buyer.

Most real estate transactions have contingencies such as a home inspection or appraisal. If a buyer does not close on a house because of a contingency, the earnest money is traditionally returned to the buyer. However, if the buyer defaults on the transaction and is unable to close, the earnest money will usually be given to the seller for damages. In either case, both the buyer and seller have to agree on the distribution of the money in writing.

Many other factors go into earnest money and how it’s handled, but it depends on the situation. So if you have other questions about earnest money or anything else regarding real estate, we’d love to speak with you. Feel free to reach out to us via phone or email. We’d love to be your real estate resource.