Earnest money shows the seller that the buyer has some skin
in the game and stands to lose that earnest money if they back out of the
contract for some reason other than the specific terms of the offer. When a
buyer is placing an offer on a property, it will typically have earnest money
associated with it. If the offer is accepted, the buyer’s earnest money will be
placed in a specified trust account held by the selling broker, the listing
broker, or the closing attorney.
In most cases, offer contracts will include a due diligence
period and a finance contingency. The due diligence period allows the buyer
time to have the property inspected and to back out of the offer with their
earnest money if they choose to. The finance contingency allows the buyer to
get out of the contract with their earnest money if financing falls through and
the buyer isn’t able to get financed.
If the buyer backs out of the contract after the due
diligence period and for some other reason than financing, the buyers earnest
money would be distributed to the seller. This would be compensation to the
seller for tying up the property and keeping it off the market without a sale.
If the buyer does go through with the offer, they will get
all of their earnest money back at closing (assuming there are no special stipulations that suggest otherwise).
How much earnest money should you put up? The amount of earnest money is totally
up to the buyer. The more earnest money committed, the stronger the offer in
the seller’s eyes. The typical amount depends on your market, but in South
Georgia, you can expect to put up .5% - 2% of the purchase price.
If you have any other particular questions or concerns about
earnest money and how it works, feel free to contact me anytime!
Jason Dove
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