Earnest Money
Definition of "Earnest money"
The logical definition of both words is almost enough to understand what is earnest money. Money is a form of exchange between people to assert value to something and Earnest equals something that shows or results from a sincere and intense conviction.
You see where this is going? The term earnest money – also known as “ good faith money” - is used in real estate to refer to an exchange that shows a sincere intense conviction of both buying a house and selling a home.
Here’s how it comes into play:
When a home buyer and a home seller agree to a fair market value, both parties make a contract to stipulate the final price of the house and the down payment. However, this contract doesn’t obligate the home buyer to purchase the home. Why? Well, the home inspection and the home appraisal may reveal structural problems and he/she will be able to say “hey; with these problems I don’t want to pay that much”. But the contract does obligate the Home Seller to take the house off the market in the meantime, so the earnest money transaction was created as a way to protect both parties: the home buyer can rest assured the home seller won’t be able to hear and accept other offers; whatever they agreed to will be what he/she will pay. And the Home Seller can rest assured that he’s not wasting time, after all the prospective home buyer has put a considerable amount of money on the table; it’s not a crazy ploy from a neighbor who’s also selling a home in order to hold people from making offers and driving them to his/her own house.
Typically, the earnest money is deposited into a trust or an escrow account. And, should something go wrong and the deal falls through, there are some stances where the home buyer will get the earnest money back and some others where the home seller will. If everything goes smoothly the way it should, the earnest money becomes part of the down payment to the house.
Real Estate Tips:
Don’t spend your hard earned earnest money without knowing exactly what you’re doing! Find a real estate agent that will go through the little details we don’t pay attention to amidst all the closing excitement.
Popular Real Estate Terms
Assemblage in real estate is the process of combining multiple small plots of land into one larger plot. This is accompanied by plottage, which is the increase in value that occurs when ...
Same as term government rectangular survey: Way in which the U.S. government uses to subdivide public land. Land is designated as either a base line (East-West) or principal meridian line ...
Opinion of a judge having no direct legal or binding effect on the outcome of a pending judicial decision. An obiter dictum is considered to be an incidental judicial remark about some ...
(1) Judgment against a defendant who does not respond to the plaintiffs lawsuit or fails to appear in court at the hearing or trial date. (2) Judgment issued by the court against the ...
(1) Methods that involve discounting the future cash flows generated by an income property. These techniques are used primarily for valuation. (2) Methods of selecting and ranking ...
Room that is fit for living in. the building in which the room is located conforms with the building code and has a certificate of occupancy. Usable for all purposes, but does not include ...
Existing state of affairs with respect to the real estate market and conditions. ...
The concept of a release can define various meanings in the financial and real estate business. Typically, it establishes a discharge or literal escape from a loan borrower's economic ...
Voluntary giving up of a right of a lien, usually on a temporary basis. The waiver may be explicitly stated or implied. An example is when a lender waives its right of lien against ...
Have a question or comment?
We're here to help.