Hey, I gave my Realtor a $5,000 earnest money deposit check...Where does that money go?
This is a basic and very obvious question that most first-time homebuyers ask once their purchase contract gets accepted.
According to Wikipedia:
Earnest Money - an earnest payment (sometimes called a good-faith deposit) is a deposit towards the purchase of real estate by a buyer to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.
When a buyer makes an offer to buy residential real estate he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.
An earnest money deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract. For example, there may be a contingency period for appraisal, loan approval, property inspection or approval of HOA documents.
In most cases, the earnest money held by the escrow company is credited towards the homebuyer's down payment and/or closing costs.
*It's important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are from the proper sources.*
1. Earnest money is submitted to an escrow company with the accepted purchase contract
2. At the closing of the home purchase, the EMD is credited towards the down payment and/or closing costs
3. If there are no closing costs or down payment, the EMD is refunded back to the buyer
Why don't the following parties to the contract hold your Earnest Money?
-Selling Real Estate Agent - a conflict of interest
-Sellers - too risky
-Buying Agent- they shouldn't have your money in their account
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