Earnest money in a real estate transaction indicates buyer committment towards purchasing the home. The old adage about 'skin in the game' or the like of. We recommend at least 1% of the offer price for the amount of earnest money. A $500 check on a $225,000 home isn't a committment, it's safe
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Selling broker (buyer's side) has 2 days from final acceptance to provide the earnest money check to the listing broker. Listing broker (seller side) is required to deposit earnest money checks within 3 days of receipt.
In MN, earnest money is not necessary to make a purchase agreement binding. This is done when all parties have signed the agreement and the agreement has been delivered to both parties. If earnest money isn't received, the buyer can be considered in default but the contract is still a legally binding contract.
In Minnesota, earnest money will be credited to the buyer's side of the transaction at closing so in essence, only intended to be considered as money due to the seller if the buyer defaults and the closing does not happen.
A cancellation agreement signed by both parties has to be given to the listing broker before earnest money can be redunded. The form will state who is to get the earnest money, buyer or seller. If both parties do not agree, the money stays in the brokers trust account until an agreement is reached or is directed by a court order.
Of course, if seller and buyer refuse to sign the cancellation, the home cannot be sold to another party as the contract is still binding. The remedy to this is called Statutory Cancellation and requires an attorney.
Buyers and sellers should expect that their agents are on top of this process as to avoid potential problems when things don't go smoothly.
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