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Definition

Earnest Money

Earnest Money is the deposit that a buyer pays to a seller while purchasing a house. This deposit money shows a buyer’s commitment and seriousness about acquiring the property. It’s also called a Good Faith Deposit.

After entering a purchasing agreement, the seller withdraws the property from the market list. At this stage, the transaction proceeds through the full process until it is completed. 

If the transaction or the deal between both parties somehow gets canceled before finalizing, the seller needs to relist the property on the list and start all over again which can be a huge financial hit for anyone who is trying to sell a house. 

At this stage, the seller can still have that earnest money according to the agreement which can eventually shield a seller from taking a significant financial hit. Usually, the amount of this particular installment might range from 1-10% of the market price of that property. 

If the deal falls apart due to a failed home inspection or any other conditions mentioned in the contract, the buyer receives their earnest money back. Depositing earnest money can reduce the possibility of a buyer making numerous offers on multiple houses and then retreating when the seller pulls the property off the market.

 

Use of this term in a sentence

  • If something mentioned in the contract goes wrong, the buyer may be able to retrieve the earnest money deposit.
  • If the conditions of the agreement are violated by the buyer, the seller may keep the earnest money.

 

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