What Is Earnest Money...I Assume I Lose It.

Real Estate Agent with Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Huntsville AL

What Is Earnest Money...I Assume I Lose It.

UPDATED 3/10/2015:

When this post was originally written, earnest money was held by the listing brokerage, since then the rules regarding the handling of Earnest Money were amended: Earnest Money may now be deposited into a non interest bearing escrow account of the buyer agents brokerage as well.


The following is an excerpt from an email that I received from a client.  It is clear that the client didn't understand the handling of earnest money or in my clients words; "good faith" money.

"...I do have a question, once again in regards to my having to extend the garage, if I deposit the $1000 good faith money and the sellers and I do not agree on a price after negotiations, I assume I lose that money?..."

 While she understands the reason or purpose, the disposition of that money for a variety of reasons was not clear to her.  First what is earnest money?  Earnest money is given as a sign of good faith that the buyer is serious about purchasing the sellers property.  It is important to note that earnest money is not given until there is a meeting of the minds...that is after negotiations.  States may differ with regard to time of delivery, but in Alabama a copy of the earnest money check will suffice with an initial offer and it's customary that it be delivered when there is an accepted offer or contract.  The buyers agent retains possession of the earnest money check until the offer is accepted then delivers it to the listing agents brokerage where it will be held until closing. 

Should there be an issue with the home inspection regarding; structural, safety or hazardous conditions that the seller is not willing to repair or amend then the buyer may rescind the contract and the earnest money will be returned to him/her.  If the buyer simply decides not to purchase the home after there has been an accepted offer most likely the earnest money will not be returned, it's up to the discretion of the seller.  State rules also vary concerning the ability of brokerages to recover part of the escrow money for costs they may have incurred.  In any case in order for the earnest money to be dispersed both buyer and seller must sign mutual consent/release forms.  If the seller backs out of the accepted offer the earnest money will be returned to the buyer.  There is more to lose here than earnest money if either party backs out of the contract; suit for specific performance is one.

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Raiza Schwartz
West USA Realty - Ahwatukee, AZ

Nick- As Alabama, Arizona also allows a copy of the earnest check as sufficient for the inital offer;  Until the start of escrow (which the earnest money is immedialtey deposited).

Dec 28, 2010 06:26 AM #1
June Tassillo
Owner/Broker RE/MAX Elite Realty - Franklin, NC
Let me help you with the next phase of your life!

Nick ~ I haven't had this happen yet but if both parties do not sign to release of the money back to the buyer or it could belong to the seller,  it could end up in court.  Until recentlyin NC it would stay in the Agency's escrow until its settled but now we can turn it over to the clerk of court after certain proceedures are followed.  Good Post! 

Dec 28, 2010 06:33 AM #2
Ellen Caruso
Daniel Gale Sotheby's International Realty - Glen Head, NY

Nick, good info, I'd like to know the answer as well.

Dec 28, 2010 11:36 AM #3
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Nick this is a topic that is confusing to many Buyers and Sellers, and you did a great job of explaining it.

Dec 28, 2010 01:17 PM #4
Dawn A Fabiszak
Private Label Realty ( Denver metro area, Colorado - Aurora, CO
The Dawn of a New Real Estate Experience!

Nick ~ that is why buyers should always use a REALTOR.  We buy and sell houses for a living and can explain every step along the way. 

Dec 28, 2010 03:32 PM #5
Jackie Connelly-Fornuff
Douglas Elliman Real Estate in Babylon NY - Babylon, NY
"Moving at The Speed of YOU!"

Hi Nick, here in NY the earnest money is held with the seller's attorney in escrow. We are an attorney state so closing usually happens in 60 days. If they buyer backs out, most times the seller gives it back. It does depend upon the situation.

Dec 29, 2010 12:37 AM #6
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Raiza-sounds like a fair way to do it.

June-pretty much the same here.

Ellen-I'm not sure what you're asking, but that EM check would never be delivered until there was a meeting of the minds...a signed contract.

George-thank you very much.

Dawn-so much that can go wrong...best to have someone who is prepared.

Jackie-like you said it depends on the situation...I don't think most sellers would be so kind around here in this market.

Feb 03, 2011 04:10 PM #7
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

To Cathy who contacted me by email. I hope my response was helpful.

Mar 09, 2015 11:42 PM #8
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Nick T Pappas

Madison & Huntsville Alabama Real Estate Resource
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