In Good Faith - What is Earnest Money and What Happens To It?

When you are ready to make an offer on a home, earnest money is required as part of the sales contract.

Here is a simple definition of earnest money:

"Deposit made by a buyer toward the down payment as evidence of good faith when the purchase agreement is signed."
www.moneyconsultants.info/terminology.aspx

In the Northern Illinois area, there is not a set rule for the amount of earnest money that should be paid, nor is there a set percentage.

The lowest amount of earnest money I have ever seen accepted is $500. Typically, the minimal amount of earnest money would be $1,000. The earnest money can also be broken into two payments, with an initial payment made with the offer, and then an additional amount due at a later date, specified in the sales contract.

The earnest money is paid in the form of a check, made payable to the listing office. The check is deposited into an escrow account by the listing office. At the closing, this money is applied towards your down payment or closing costs.

If you cancel the contract due to a contract contingency, such as home inspection issues or mortgage contingency problems, your earnest money is typically returned to you. There is a real estate form that needs to be completed and signed by all parties for the release of the earnest money. If you get "cold feet" and walk away from the contract without cause, you may very well lose your earnest money and run the risk of being sued by the seller for damages.

This is purely for informational purposes only and should not be construed as legal advice and fact. Please consult an attorney for your individual situation.

Jim Starwalt

Thinking of making a move? Log onto my website at www.StarHomeFinders.com and search the Multiple Listing Service from over 150,000 homes for sale. Registering is quick and easy!

Jim Starwalt, Broker Associate RE/MAX Center, Phone: 847-548-2625 Jim@StarHomeFinders.com