How Earnest Money Works in a Real Estate Transaction

    In a real estate transaction, earnest money is good-faith money deposit put down by the buyer promising they’ll move forward according to the terms set within the contract.

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    What role does earnest money play in a real estate transaction?

    Earnest money is very similar to a security deposit you might pay for an apartment you’re renting. In that scenario, it’s a display of good faith that you’ll leave the apartment in the same condition you rented it in. In a real estate transaction, it’s a good-faith money deposit put down by the buyer promising you’ll move forward with the terms set within the contract and the offer you’ve written.

    “Earnest money is similar to a security deposit you’d put down for an apartment. “

    Earnest money will be used toward your down payment, but it is held by escrow (or your agent’s firm, depending on the contract you write.) We protect that earnest money through contingencies, of which there are many you can use, including inspections, financing, and/or the sale of your home.

    Every situation is different, but you need to know what you are comfortable with and what contingencies you have (if any) that protect your earnest money.

    If you have any questions about earnest money or you’re thinking of buying or selling a home, don’t hesitate to give me a call. If you send me a question about a topic you’d like me to elaborate on and I use it in a video, you will receive a $25 Amazon gift card. I look forward to hearing from you.

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