In real estate earnest money refers to the deposit money that accompanies an agreement of sale that exhibits a buyer’s “good faith” and shows the seller that they are serious about purchasing a property. It can also be referred to as earnest money.
The amount of earnest money that a buyer puts down varies widely with factors such as competition for the property, overall market strength, and local practices, playing a big role. Legally in Pennsylvania a buyer does not need to pony up any earnest money, but it would be very difficult to get an agreement signed without it.
While buyers will generally want to part with as little as possible to limit their potential loss, a seller needs to ensure the earnest deposit reflects the buyer’s commitment to close on the property. Earnest money serves as monetary damages if the buyer breaches or defaults on the contract. The agreed upon earnest deposit total is a result of the negotiation between buyer and seller.The earnest money is typically deposited and held in an escrow account by the listing broker.
Earnest money is often confused with down payment money but they are not the same. The earnest money is credited to the buyer at settlement and serves first as funds that are applied to closing costs. Of course with a large earnest money that exceeds the amount required for closing costs such funds do make up a portion of the down.
Contract contingencies offer the buyer the legal means to terminate a sale and have the earnest money returned to them, buyer’s remorse is not among them. The most common contract contingencies include:
Mortgage Contingency: If a buyer is unable to obtain mortgage financing
Home Inspection: A buyer can terminate the deal if there are inspection issues that can not be resolved between them and the seller
Title Search: If a clear title can not be obtained
Appraisal: If the appraisal does not come back at contract value and the buyer and seller can not successfully negotiate a resolution
With every contract there are specific actions and time frames the buyer must adhere to. Be sure to ask your agent for a clear outline of your milestone dates. Do not put yourself in jeopardy as a buyer by blatantly ingoing contract timeframes. Such actions can put you in breach of contract and your earnest deposit can legally be retained by the seller.
Wallingford PA Real Estate – Wallingford, PA 19086