What is Earnest Money?

What's The Point of Earnest Money?

When purchasing a home for the first time there are numerous things that can confuse buyers. Who can blame them given the fact they haven’t gone through the process before. One of the more surprising concepts that escapes home buyers is the purpose of earnest money. While it may seem complicated on the surface it’s not.

Earnest money is exactly what it sounds like – funds that make it clear to a seller that you are “earnest” about buying their property. Without earnest money a buyer will be able to walk from a transaction without any consequences.

The earnest money offers protection to the seller in the form of money that makes it painful for a buyer to skip out on a commitment to purchase. Another terms used to describe earnest money is “good faith funds”. The seller is relying on a buyer proceeding so they can make plans of their own.

There are numerous things to know when it comes to earnest money. One of the things that buyers often do is confuse an earnest money deposit with their down payment on the house. They are not the same thing!

Buyers should never confuse these two things. If you want a comprehensive explanation of how earnest money works in a real estate transaction, take a look at the article from Maximum Real Estate Exposure on the subject.

You will learn just about everything there is on earnest money including how it works, how much is enough, who holds the funds and who gets the money in the event the sale does not happen.