What Is Earnest Money...I Assume I Lose It.
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.
If you need a knowledgeable real estate professional in Madison or Huntsville Alabama area, why don't you let me Google that for you! I also know outstanding agents in all states and Canada should you need help relocating to a new area.
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