What is Earnest Money?

Earnest money is a term used for a deposit made in “good faith”, a deposit made with the intention of completing a transaction. This amount is typically deposited after the seller has accepted your offer and is typically applied to the total cost of the purchase.

How does it work?
When an offer is made, an amount of earnest money willing to be put forth will be included in the proposed purchase and sale agreement. If the offer is accepted and depending on the amount of time the contract states, the buyer will deliver a check for the agreed amount either to the real estate brokerage or to the title company to hold in their escrow or trust account.

Where does it go?
The money is held either at the real estate brokerage or title company, depending on the agreed upon terms of the contract, may be credited back to the buyer at closing.

Is it a down payment?
Earnest money is not a down payment; however, if an offer is accepted the amount deposited may be applied to the closing costs or the down payment.

Can I get it back?
Depending on what the purchase and sale states, the earnest money may be released to either the buyer or the seller if a deal falls through. This will whatever is agreed upon by all parties in the contract.

How much is it?
The amount of earnest money included with an offer depends on the sale price but is usually 1% to 2% of the price (National Association of REALTORS®). In a seller’s market, the market we currently are in, sellers might expect a higher amount of earnest money on an offer.

What if I cannot afford it?
You do not necessarily need to put forth earnest money for an offer, there is no law in Idaho preventing a buyer from making an offer without earnest money included. We are operating in a competitive market though and offering higher amounts of earnest money is more likely to secure an accepted offer than an offer with a lower or no earnest money put forth.

An experienced real estate agent will talk you through these terms and help you understand what you agree to when you sign a purchase and sales agreement. It is important to remember that a purchase and sales agreement is a legal contract, so understanding what you are signing is imperative.

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