WHAT IS EARNEST MONEY AND HOW DOES IT WORK?

Earnest money is a term used frequently in real estate. But it’s also a term some clients don’t fully understand, especially if they’re first-time homebuyers. So, what does it mean, exactly?


To put it simply, once a buyer and seller are in contract, the buyer pays earnest money (typically 1-3% of the purchase price) to show they are serious about the home they are purchasing.


Earnest money protects the seller if the buyer backs out and they have to re-list the home. If the deal falls through due to a failed home inspection or any other contingencies listed in the contract, the buyer gets their earnest money back. If all goes smoothly, the earnest money is applied to the buyer’s down payment or closing costs.


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