Real Estate Word of the Day: Earnest Money
Earnest money is a deposit made by a potential homebuyer to show that they are serious about purchasing a property. It's a gesture of good faith, indicating that the buyer is committed to following through with the purchase. This deposit is typically held in an escrow account and is applied towards the down payment or closing costs upon finalizing the sale.
Earnest money shows the seller that the buyer is serious about the purchase, which can make the buyer's offer more attractive, especially in competitive markets. Once the earnest money is deposited, the property is taken off the market, and the seller is less likely to entertain other offers. This gives the buyer time to conduct inspections, secure financing, and complete other due diligence without worrying about losing the property to another buyer. The earnest money provides some security to the seller in case the buyer backs out of the deal without a valid reason. Conversely, if the seller fails to meet the contract terms, the buyer can often get their earnest money back.
Earnest money is usually paid when the buyer and seller sign the purchase agreement. The funds are then held in an escrow account managed by a third party, such as a title company or real estate broker, until closing.
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