You have found your dream home and want to place an offer. It’s an exciting time! During this process some new terms may be mentioned – earnest money being among them. What is earnest money?
Earnest money, sometimes referred to as hand money, is a deposit completed by the buyer to establish good faith. The buyer submits the deposit along with their offer, this illustrates to the seller that the buyer is committed to purchasing their home. There are times where the buyer will sign a Promissory Note which states that once the offer is accepted, the buyer will redeem the Promissory Note with a check payable typically to the buyer’s Realtor’s Broker.
The money is held in a non-interest-bearing regulated trust account with the selling broker or the title company. While the amount is negotiable between buyer and seller, earnest money can be utilized to strengthen an offer and indicates the buyer’s level of commitment. For years, earnest money is typically between one percent and three percent of the purchase price and will typically be credited to the buyer.
The money is due at the time of writing the offer. Remember to bring your checkbook when you make an offer. If for some reason the financing does not go through or if the inspections do not work out, the earnest money is released to the buyer. However, the money can be forfeited to the seller if the buyer breaches the contract. If the sale does not go through, the earnest money is disposed of as directed in the signed mutual release completed between the buyer and seller. It can take a minimum of five business days for the money to be returned to the buyer, due to the check processing time.
If you have any further questions regarding earnest money, please contact The Gallmann Group at 440.248.2548.