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What is Earnest Money?

In order for the seller to know you are serious about the offer, you will need to include a deposit or good faith money (a.k.a. Earnest Money) with the purchasing contract or offer. The amount varies but 5-10 percent is usual. Who holds the deposit and the amount of the deposit should be specified in the contract. Typically the money goes into an escrow account, which earns no interest. The earnest money is often then used as part of the cash down payment given to the seller. The earnest may be returned to the buyer in the event the seller pulls out of the deal. If the buyer pulls out of the deal and a disagreement occurs over who gets the earnest money, the broker has two options:

  • Hold the money until the disagreement is settled.
  • In some states, turn over the money to the state real estate commission or agency for mediation or to the local courts for litigation.

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