What happens to that earnest money?

coinsI get asked questions about earnest money all the time. Recently I encountered a situation where the home buyer was worried that the earnest money would be stolen. Your earnest money is safe.

Earnest money is a deposit made by the buyer. It is held in a real estate broker’s trust account until the sale closes. The purchase agreement spells out who will get to keep the earnest money if the buyer fails to close.

A home can be purchased without earnest money if both parties agree.

Earnest money does not go to the seller. The most common practice is earnest money held by the seller’s broker. The money is usually electronically sent directly to that trust account and there are all kinds of rules and laws governing trust accounts.

Ultimately the money goes toward the purchase price. It will show up on the settlement statement as a credit.

The amount of earnest money depends upon the price of the house.  A larger earnest money deposit can make a buyer’s offer look better to a seller. It shows that the buyer is committed to the purchase.

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