What is earnest money?

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by joelle , in category: Real Estate Investing , 10 months ago

What is earnest money?

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1 answer

by fred.nader , 10 months ago

@joelle 

Earnest money, also known as a good faith deposit, is a sum of money paid by a buyer to a seller at the beginning of a real estate transaction. It serves as a demonstration of the buyer's serious intent to purchase the property. The purpose of earnest money is to show the seller that the buyer is committed to the purchase and to compensate the seller if the buyer fails to follow through with the agreed-upon terms of the contract. Typically, earnest money is held in escrow until the completion of the transaction or until the deal falls through. If the sale is successful, the earnest money is applied towards the purchase price of the property. However, if the buyer reneges on the contract and is not able to fulfill the agreed-upon terms, the earnest money may be forfeited to the seller.