Earnest money is a good faith deposit that tells the Seller you’re serious about purchasing the property. In most cases the earnest money deposit is used as a credit toward your closing costs or refunded directly to you.
How much is needed?
Typically a seller will ask for 1% to 2% of the purchase price as earnest money. You need to know that earnest money may be negotiated higher or lower based on your situation. For example, if your offer has a delayed closing date, then a higher earnest money deposit may sway the seller to accept your offer.
When do you need it?
Normally within a few days of contract acceptance. Once your check gets delivered to the earnest money holder it will get cashed, so make sure you have the funds available in your account.
How can you lose your earnest money?
If you default. A default only occurs when you somehow fail to live up to your obligations under the contract. For example, not showing up for closing or failing to diligently pursue loan approval may create a default. You forfeit your earnest money if you default on a contract.
It’s unusual to lose earnest money in a transaction and your reRESULTS agent works diligently to protect your earnest money and keep you informed of default risks.
A default is not the same as terminating a contract. Most contracts allow you to terminate a contract if you encounter problems with inspections, appraisals, insurance, loan approvals or title examinations. You get your earnest money back if you terminate a contract.
What if buyer and seller have a dispute over earnest money?
Most contracts require the buyer and seller to participate in mediation if the buyer and seller disagree over whom the earnest money should be returned. Mediation is a process in which the parties meet with an impartial person who helps to resolve the dispute informally and confidentially.