What is earnest money?

When it comes to real estate, your word isn’t necessarily your bond. Earnest money involves putting money down toward the purchase of a new home before you get to the closing. It’s a form of good faith used to give the seller confidence that you have every intention of sticking with the deal for the long haul and they won’t be stuck holding the bag.

The seller is taking on risk when they accept the offer. If the deal falls through for some reason, they must start the process all over again to put their home on the market, which costs time and money. If all goes well, earnest money, which generally amounts to 1-3% of the price of the property, will be directed toward the down payment or the many closing costs. If the deal fails due to an issue on the part of the seller, such as a home inspection not passing muster, for instance, the funds will be returned to the buyer. 

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