What is Earnest Money?

by seacoast_ashley 26. January 2014 07:31

Writing Earnest Money CheckWhen a home is under contract, it’s removed from the market. This is good for the buyer, because it gives them time to do their inspections and due diligence without the threat of another buyer snatching the home out from under them. However, it can hurt how well a home sells by preventing other buyers from seeing it; therefore, a frivolous buyer can be a waste of time and money for a seller. When you sign a contract to buy a home, you make a deposit on that home. This is called an “earnest money deposit”, because it shows you are earnest or serious about buying the home. Many sellers won’t accept an offer without a deposit.

Depending on demand and the price of the home, earnest money can be up to 3% of the contract price. In Southeastern North Carolina, $1,000 to $2,000 is quite common, but your real estate agent will advise you on the most appropriate amount. Once the due diligence period is over, the earnest money is applied to your down payment and closing costs.

When you make an offer on a home, the earnest money is included in the contract, but the check is not deposited until the offer is accepted. The listing brokerage or closing attorney holds the money in their escrow account until the due diligence period is over or the buyer terminates their offer according to the guidelines outlined in the contract. If the buyer does not follow these guidelines and the contract falls through, the seller will receive the earnest money; however, if the buyer follows the guidelines and terminates the contract, the earnest money is returned to them.

Have questions about the earnest money check? Ask your Sea Coast agent. Don’t have an agent, find one today.

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