What is an Earnest Money Deposit?
When purchasing real estate, it is customary for a Buyer to provide a financial deposit with their offer. The deposit is commonly referred to as an “earnest money deposit” and is usually in the form of a personal check, bank check, or money order. The earnest money deposit demonstrates the Buyer’s “good faith” to carry out the terms of the purchase offer and is credited towards the Buyer’s closing costs at the time of closing.
The earnest money deposit is normally held by the Seller’s attorney in an escrow account. The earnest money deposit should normally be at least 1 to 2 percent of the selling price or whatever amount the Seller deems acceptable. The amount of the deposit should be sufficient enough to discourage the Buyer from defaulting on the purchase.
If the Buyer defaults on the contract, the Seller may be entitled to keep the entire earnest money deposit. For answers to all of your legal questions, please consult your attorney.
