What is Earnest Money and Why Do You Need It?

Rita O'Rear

Earnest money is a typical part of the buying process but for many first time home-buyers (and checkbookeven those seasoned home-owners themselves) it can get confusing as to what this earnest money really goes towards.  In most cases earnest money is money given from the buyer to the seller once a mutual acceptance of a deal has been agreed upon.  While the amount of earnest money can vary from state to state the average amount is between 1%-3% of the purchase price.  This money is given to protect the seller from buyers making agreements and then backing out.  But despite that statement the seller cannot go out and immediately take possession of this earnest money.  In fact the earnest money is typically held by the sellers broker and under strict guidelines in a separate account that is non-interest bearing.

If the sale is then successful the earnest money is then…

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