Earnest Money
One of the least understood parts of a Real Estate transaction is Earnest money. The initial purpose of earnest money is to give something that makes the offer more appealing to the seller. It is also rewarded to the seller when the buyer does not follow through with their end on the agreement.
There are many thoughts on what should be given as earnest money. In the past buyers have given everything from farm animals and vehicles to jewelry. It is possible to use things other than money as earnest money today, but it is not something that happens often.
The earnest money needs to be placed in the seller’s real estate brokers account. It is not given to the seller! The money is held until closing.
A confusing area with earnest money is how is it forfeited? Most sellers have the belief that the money will be given to them if the buyer doesn’t buy the home. This is true, but there are a lot of loopholes. The first are contingencies of the purchase. Making a purchase contingent upon something means that something has to be okayed or completed for the purchase agreement to continue on.
Some examples would be the buyer wanting a home inspection, the buyer needing to be able to get acceptable financing or the buyer’s home being sold before the purchase. If a contingency is not possible to be removed the buyer is protected and able to have their earnest money refunded to them.
States differ on their real estate laws on what constitutes the forfeiting of earnest money. Consult with a real estate lawyer if you feel that you are wrongfully losing your earnest money. Some states are more in favor of consumers so they are more likely to return the money to the buyer, and others can be in favor of the seller.
What amount should a buyer offer as earnest money? One percent of the purchase price is fairly standard. If you are in a multiple offer situation, I have seen a sellers accept and or negotiate with the person that offers the most earnest money when the offers are similar. It can make you appear more serious and more likely to be able to complete the transaction.
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We are selling a mobile home and we had a purchase contract that we got from a mobile home dealership, the contract was dated 2-4-06 with a deposit of $5,000. earnest money. The contract expired on 3-31-06 and we rec’d no call or letter from the buyers, we took it upon ourselves to contact them, we agreed to another contract on 4-1-06 with an addt’l $10,000. deposit of earnest money. This contract expired 4-21-06 and we have never rec’d a call regarding this. We sent a certified letter to the buyers regarding this and stated unless we receive the remainder of the money due, the earnest money will be forfeited to us as the sellers. We have rec’d no response from the buyers as of yet today 6-6-06. Is the earnest money legally ours ?? We could have sold this mobile home several times since these contracts were made.