BuyersBuyers & SellersSellers August 12, 2022


What is earnest money?

Earnest money is a good faith payment which shows the seller that you are serious about buying their home.  It’s also part of your down payment.  So for instance, if you pay 1% in earnest money (abbreviated as EM) and your total down payment is 20% then that means you’ve already paid 1% of your down payment up front. So at closing, you’d just pay the remaining 19% of your down payment plus your closing costs. 

How much is earnest money?

Typically it is 1% of the offer price in our area.  The first EM payment is usually due within a few business days after an offer is accepted.  Earnest money is typically deposited the day it is received so be sure that money is in your account when you drop off the check or wire the funds.

Who holds the earnest money?

Usually, the earnest money is held by the real estate brokerage representing the seller.  However, not all real estate brokerages are set up to hold earnest money. If the seller’s real estate brokerage doesn’t hold earnest money then often times either the buyer’s real estate brokerage or the title company will hold the earnest money instead.  EM will be credited back to the buyer on the closing statement.

Why do we pay earnest money?

Sellers take their home off the market for buyers and the earnest money is the way the buyers show sellers they are serious. Without some skin in the game, a seller is unlikely to accept the offer. 

Can I get my earnest money back if I cancel the contract?

If you have a change of heart, you will forfeit your earnest money.  If the inspection reveals major defects, as defined in IN, that the seller is unwilling or unable to address then a buyer could submit a mutual release and would likely receive their earnest money.  If a buyer doesn’t give the seller an option to remedy defects, the buyer could lose their earnest money.  If the buyer has waived inspections or is buying as-is, then just ask me about that because those are different circumstances for how EM is handled.  Regardless, if you submit a mutual release because your loan was denied, the property burned down, the property didn’t appraise or because of another reason where your earnest money was protected in the contract then you’ll usually get the full amount of your earnest money back.

If you have additional questions about earnest money, just let me know!