Earnest Money
Definition of "Earnest money"
The logical definition of both words is almost enough to understand what is earnest money. Money is a form of exchange between people to assert value to something and Earnest equals something that shows or results from a sincere and intense conviction.
You see where this is going? The term earnest money – also known as “ good faith money” - is used in real estate to refer to an exchange that shows a sincere intense conviction of both buying a house and selling a home.
Here’s how it comes into play:
When a home buyer and a home seller agree to a fair market value, both parties make a contract to stipulate the final price of the house and the down payment. However, this contract doesn’t obligate the home buyer to purchase the home. Why? Well, the home inspection and the home appraisal may reveal structural problems and he/she will be able to say “hey; with these problems I don’t want to pay that much”. But the contract does obligate the Home Seller to take the house off the market in the meantime, so the earnest money transaction was created as a way to protect both parties: the home buyer can rest assured the home seller won’t be able to hear and accept other offers; whatever they agreed to will be what he/she will pay. And the Home Seller can rest assured that he’s not wasting time, after all the prospective home buyer has put a considerable amount of money on the table; it’s not a crazy ploy from a neighbor who’s also selling a home in order to hold people from making offers and driving them to his/her own house.
Typically, the earnest money is deposited into a trust or an escrow account. And, should something go wrong and the deal falls through, there are some stances where the home buyer will get the earnest money back and some others where the home seller will. If everything goes smoothly the way it should, the earnest money becomes part of the down payment to the house.
Real Estate Tips:
Don’t spend your hard earned earnest money without knowing exactly what you’re doing! Find a real estate agent that will go through the little details we don’t pay attention to amidst all the closing excitement.
Popular Real Estate Terms
Enclosed building that stores agricultural products (hay, livestock or farm equipment). ...
A rectangular area bordered on all sides by buildings. Often, a quadrangle is grassy with decorative landscaping. A quadrangle can be found in a central business district or on the site ...
The Asset Depreciation Range (ADR) was introduced by the Internal Revenue Service (IRS) in 1971. It was designed to help businesses determine how long to use certain assets, like equipment ...
Measures looking at the past , current an future direction of the economy. They may have an impact on the real estate market. Each month government bodies, including the Federal reserve ...
Something coming before. Examples are the year before, first lien on property, and previous owner of property. ...
A business in which one or more person, with unlimited liability, called general partners, manage the partnership. There are also limited partners who contribute capital, but do not manage ...
Heterogeneous (as opposed to homogenous) means diverse in nature applied to a place or object composed of separate and distinct parts. In other words, heterogeneous describes something that ...
(1) Judges remark in a court ruling not in and of itself embodying the law. A dictum merely illustrates or amplifies the ruling. (2) Arbitrator's ruling. ...
Written acknowledgment by an individual holding title to property that it is being held in trust for another. ...
Have a question or comment?
We're here to help.