What is Earnest Money?

What is earnest money and what is it used for?

Earnest money is the first portion of your down payment, it’s usually 1-2% of the cost of the house, so a $500k house you’ll put $5,000 down within 3 days of the seller accepting your offer. 

This money goes into an escrow account which is help by a neutral third party usually a title company. In the vast majority of real estate deals, if you don’t close on the house, you will get this money back.

You’re realtor should be paying very close attention to your contingencies, so if there is something you don’t like on the inspection and you can’t negotiate a repair that you’re comfortable with, you can get the money back. Or, if your mortgage loan is rejected, you should know this before your financing contingency expires so that you can get your earnest money back.

Seller’s rarely keep earnest money when a deal falls apart because contracts are written with contingencies protecting buyers. Now this drives sellers crazy, because they know that your financing could fall through three weeks into the deal, they’ve pulled their house off the market and are preparing to move, and you can terminate the deal and keep your earnest money.

Now there is an opportunity here, because if you’re willing to waive your financing contingency, if you say to the seller, we are very well qualified, we can get this loan no problem, so we’re waiving our financing contingency, your offer all the sudden becomes much stronger, you can negotiate a better price, or win in a competitive situation!