Earnest Money and the Escrow

Do you really know what they are?

Earnest 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.

Where 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 escrow.

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.

What If...?

Contingencies.

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