subject: Have You Heard of Earnest Money? [print this page] Have you any idea what earnest money is? Earnest funds are like the baiting of a hook. It's the fancy fishing lure that draws a seller's preliminary interest.
Earnest money and the down payment are different. The down payment is usually a set amount of the full purchase cost provided at the start in good faith. Earnest money is focused on showing how serious you might be about your offer. Therefore, the total amount can be between $1 to the total selling price or above. What you may offer relies completely on your financial situation and your level of comfort. Not surprisingly, a bigger amount of earnest money is always more attractive to the seller, so those offers will probably be the very first to be accepted.
The title company or escrow company will retain the earnest money for you, keeping it secure so that you can proceed with the housing deal. If your company cashes the check, then it could take a bit longer for you to get a refund, since they will have to write you a fresh one. Your best option is to use a company that can simply hold the money until it is all totally decided.
For additional protection, you may include contingencies in your contract. Contingencies in your contract will state under what conditions you could receive a refund if your deal doesn't happen. If you plan for contingencies, when your loan doesn't go through or the home examination turns up mold, you can safely back out of your offer and take your deposit with you.
It's also wise to add a "liquidated damages" clause to your contract. So, if you need to abruptly back out of the contract, you will be protected. To say it in yet another way, you will only lose your down-payment and earnest money. Nothing else will be requested of you.
And that's all there is to earnest money. The home of your dreams is just a bit of money and a protective contract away.
Have You Heard of Earnest Money?
By: Barbara Samuson
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