The idea is, if something goes wrong after the Purchase Agreement is entered into, and the buyer refuses to Close without legal justification, the seller would be able to keep the Earnest Money despite the fact that he was not able to sell his house. The reason why we use Earnest Money so often in the purchase of Real Estate is mostly for protection and a little in order to keep buyers serious. Most often the seller’s attorney, the realtor, an escrow agent, or the seller holds the Earnest Money. The agreed upon amount is then paid by the buyer to whomever the parties have designated as being responsible for holding on to the Earnest Money. Depending on whatever agreement the parties may reach the amount of the Earnest Money could be as low as a couple hundred dollars or as high as 40% of the purchase price. Generally, Earnest Money is either a dollar figure, like $1,000.00, or some percentage of the total purchase price.

In other words, it is like money down on the purchase of the property in question.

When it comes to Earnest Money and trying to understand what exactly it is, you really need to answer three questions: 1) what is it 2) why do we use it and 3) who gets to keep it.Įarnest Money is essentially the same thing as a deposit for the purchase of Real Estate. Ah, the Earnest Money, that special sum of money that sellers want a lot of, buyers don’t want to pay period, and that no one figures out the importance of until both parties are spending thousands of dollars in legal fees on trying to get it back or keep it.

Earnest money