Do you really know what they are?
Money The real deal.
Earnest money is a deposit toward the purchase
of the price. It is a deposit.
Sometimes the buyer will include a check
for $1000 or so with the initial offer to purchase to show they are operating
in good faith. This is extremely popular in areas where homes are scarce. If the
seller likes your offer and wants to sign a contract, they will take the earnest
money and stop showing the house.
The earnest money is a deposit that is
paid when both parties execute the contract. It is normally five to 10 percent
of the sales price. If you included money with your offer to purchase, you would
pay the rest when the contract is signed. This is your down payment.
Does It Go? The flow of money.
Earnest money goes into what is called
an escrow account. This is an account that is normally held by the seller broker
or another third party. The buyer receives interest on the money while it is in
Here's how it works:
Your down payment on the house
is paid when you sign the contract. That money goes into an escrow account, held
by a responsible third party, until closing. At closing it is paid to the seller.
The interest on the escrow account goes to you as the buyer, or you can transfer
it to the seller to cover additional costs.
If the sale doesn't go through,
for one reason or another (of course, all reasons would have to be in compliance
with the signed contract), the buyer receives the escrow money back. This return
of the money should, of course, be included in the contract terms just for safety's
sake. The seller normally has to sign a form to release the funds. If the seller
refuses to sign the form, the responsible third party may release the funds with
the signature, or turn it over to a real estate commissioner for resolution.
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