This week's topic: What is earnest money?
Earnest money, also known as a "good faith deposit" is a sum of money that is put into escrow within three days of a signed acceptance of a purchase contract.
A buyer typically will either wire or hand deliver this money to the escrow company.
(Quick note: always be careful when wiring money, there's been a rise in wiring fraud. We're cover how to avoid this in another episode).
The standard is that buyers will give 1% as the earnest deposit but there are instances when they will sometimes give more in order to strengthen their offer. This is typically seen in multiple offer situations to let the seller know that the buyer is serious.
This money is then held by a third party escrow company and it is held throughout the duration of the escrow process. At the end of escrow it is sometimes used as part of a buyers down payment or to cover escrow costs. The process can vary slightly with a VA loan, resulting in some of the money being returned to the buyer if it exceeds the down payment amount.
This money can be refundable so long as there is at least one contingency in place at the time of the cancelation or if new fact evidence comes up, such as a pipe burst etc. New fact evidence can either be negotiated with the seller or the earnest money can be refunded to the buyer.
That covers the main points about earnest money. If there are any additional questions or if you have another topic you would like covered, please reach out to us!