Filed Under Buying · Tagged: Buying, deposit, earnest money · Print This Article
By Lisa Eddingfield
AmyBSells Team Buyer Specialist
What is an Earnest Money Deposit?
Earnest money is a term typically associated with Real Estate. It’s a good faith deposit that a buyer pays, and it should accompany an offer in a real estate transaction. An earnest money deposit says to the seller: “Yes, I am serious about buying your house and here’s some money to prove it!”
Once there is a fully executed contract, the earnest money check will be deposited in the Real Estate Broker’s non-interest bearing trust account until closing. At closing, the earnest money is typically applied toward the down payment for the purchase of the property. A buyer should NEVER give an earnest money deposit directly to the seller.
According to the Cincinnati Area Board of Realtors:
“Earnest money is a financial pledge from the buyer that he/she will make a diligent effort to fulfill the terms of the Contract to Purchase presented to the seller. When there is a closing on a property, earnest money is disbursed as directed by the buyer; usually credited toward the selling price of the property. If the transaction does not close, the money can be disbursed to either the buyer or seller, depending on the reason the closing did not occur. The earnest money is returned to the buyer as long as the failure to close was due to contingencies included in the Contract to Purchase not being met or removed due to no fault of the buyer. However, if the buyer fails to perform in accordance with the terms of the contract, the money may be forfeited to the seller. In most cases, though, earnest money is collected, the process continues smoothly and the deposit is disbursed as indicated in the contract.”
Why is earnest money important in a real estate purchase?
An earnest money deposit submitted with an offer to purchase real estate might seem like a simple matter; however, it’s a very important statement. Often times buyers are hoping to put as little down as possible and are concerned about what will happen if the purchase doesn’t work out. But to sellers, the earnest money deposit represents commitment. Therefore, in reality it’s a way to guarantee the purchase. The amount of the deposit varies from purchase to purchase, depending on a variety of factors. In the Greater Cincinnati area, it is customary for the earnest money deposit to equal 1% of the purchase price.
Contact us for further information concerning earning money deposits and other real estate matters.
Learn More:
Cincinnati Area Board of Realtors: Earnest Money
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