First time home buyers ask what earnest money is. Money that accompanies the purchase agreement to show that the buyer is serious about buying the property, sometimes called a deposit. These funds are not in addition to the purchase price, they end up being put toward the purchase.
Buyers can lose their earnest money by backing out of the deal after the purchase agreement has been accepted by both parties.
Lately I have been running into some problems with earnest money. We received earnest money from a buyer of one of my listings and the check bounced. Even though the money is not spent until the closing state law says that they have to go into a real estate brokers trust account with in three business days. I am also noticing that earnest money checks are getting smaller all the time. $500.00? you have got to be kidding, how serious are you about purchasing this home? I like to see a check for 1% of the purchase price. I have gotten checks for 20% of the purchase price, most buyers do not have that much cash. Locally first time home buyers can usually get by with between one and two thousand dollars.
Then there is the real estate industry with our business practices and traditions. 
Earnest money is paid by check. Some people, like me for instance, don’t use checks unless we have to. Bills are paid online and for everything else there is the Visa check card. I write maybe 7 or 8 checks a year, and seldom know exactly where my checkbooks are and never carry them with me. I have clients who do not use checks either. Cash isn’t an option, as in actual currency. Maybe buyers can pay in bills but I won’t accept a few thousand dollars in currency and I doubt if most other agents or their brokers will either.
Buyers should locate their check book before making and offer and if necessary practice writing checks if they have forgotten how. I could post instructions, but I am not sure I remember the correct way to write a check.
I always thought that “Earnest” money meant they had the right to be really obnoxious about all the little details, like Jim Varney’s character.
KnowwhatImean Vern, knowwhatImean?
we received an offer last night for one of our listings with $10 in earnest money – $10!!! I’m still laughing.
$10? that is a new one. 🙂
If you only received $10 dollars in earnest money, how much was the option fee? 10 cents.
I learned the lesson Earnest Money the hard way. We went to sell our house in July and got an outstanding offer within 9 days. The buyers agent said they had nothing to sell and that they were an older couple. With that $1000 should be a good earnest money. We granted them two mortgage extentions becuase supposedly a form was being held in underwritting. A week before we were supposed to close, we moved into an apartment as we were having a house built. Two days before closing the bank denied our buyers fiancing because they hadn’t sold their existing property and their credit was in the mid 600s. The deal fell through and all we got was the $1000 in escrow money because they were approved for a mortgage, but it was based upon a home sale and they excluded the home sale contingency. However, we were out over $3300 for rent and moving expenses (luckily we were able to get out of our lease). 1% for us would have been $2900. That would have dramatically made our loss less!
B. Schoppe – you bring up another good point that I am writing a post about, the pre-approval letter. It is interesting these days, they don’t mean much. We call the lender who says the borrowers are as good as gold and then get a nasty surprise. You are also correct in your idea about the earnest money being enough to cover an extra months mortgage or rent of the deal falls through. Thanks for the comment.
But what happens when the earnest money check bounces? We recently received an offer on our home with a sizeable earnest money check – both parties signed off on the purchase agreement, and the buyer even signed an addendum stating that his earnest money was non-refundable after a certain date (this was done because the time between signing the PA and closing was only a few weeks). The night before we were supposed to close (and over 2 weeks after the earnest money check was submitted to our realtor), our realtor called to notify us that the check bounced – the next day the “buyer” didn’t show up to closing. But we are still going back and forth, with the buyer saying that he is still interested, etc. Meanwhile we have nothing to show for his breach of contract! What are our rights?!
Very frustrated!
Marr B. I am not an attorney and I can’t give you legal advice and you have a Realtor so I can’t represent you. I’ll just make a few comment or two.
By MN law the broker has 3 days to deposit the earnest money after the final acceptance date on the purchase agreement.
Do you know that the buyer can perform on the contact?
How much did this cost you? usually when people take legal action it is to collect money . . damages?
I too am learning my lesson the hard way.
i rec’d $5k earnest money on a $273K cash offer. my home had been on the market for a long time. I really needed to sell. He wanted to close in 3 weeks. and take possession. He’s filthy rich. there were contingencies – all his responsibility to clear.
after the 15 day deadline his realtor told my realtor all was good – we’re moving forward
… i had my moving sale – sold 2/3 of all my furnishings (5BR,3 BA to a 1 BR apt),
cancelled all the rentals i’d booked for the summer (my home is in a vacation area and rented for 1500-2k/week),
and moved out.
1-1/2 hours b4 closing he bailed. That was 6/30/08
he wouldn’t release the earnest money. said it was because of a contingency. i didn’t have anything in writing so too-bad, so-sad
I won in small claims. he’s appealing.
i’m filing bankruptcy (loss of the rental income put me over the edge) he’s a millionaire.
i’m representing myself… he’s obviously got a lawyer who’s burying me in paper – wasting the court’s time.
talk about frustrated! Glad I believe in Kharma!!
my biggest mistake? trusting an agent who didn’t have it together – she didn’t get anything in writing.
trusting his agent who said he was a “family friend” – neither agent knew how to write anything that was even close to legal wording…
now i’m back in my 5 BR house, with one bed and lots of blow up beds… trying to learn how to be a lawyer!
yuck! i just want the earnest money! be nice if i could get damages – like the lost rent, but that doesn’t look good.
I Think “earnest money” title should be changed to the “consultation fee” for real estate dealer.This well avoid the confusion among the buyers at the time they decide to buy a property.
immobilien – it isn’t a consultation fee and the “real estate dealer” doesn’t get the money. It ends up paying part of the cost of the house of back in the hands of the buyer or the seller gets it. There isn’t any situation where it is paid to a real estate company or realtor.