Before any document or agreement can become a legal and binding contract, for both sides, there has to be consideration. Something must be offered as evidence and proof that an agreement is more than just a person's word to buy. Earnest money is that consideration. The more money you put down, the more earnest you are displaying to the seller that you indeed want to buy his/her home.

But how much shows earnest?

An excellent question with no black and white answer. All real estate transactions are individual circumstances and situations that require different approaches. This is one of the many reasons you want to be professionally represented by Brian J. Kreick, when it comes time to negotiate a contract. In general, earnest money usually falls within 1-5% of the purchase price.

When do I need to pay this?

You place earnest money at the time of an offer, either by check or money order. Earnest money is attached to the offer, there fore becoming part of the offer. The check is usually deposited within 24 hours of an accepted offer. But, can be deposited once the inspection contingency has been met.

What happens to my earnest money and how is it used?

Earnest money will go into a trust account held by a third party. This way neither the seller nor the buyer has access to it. As you move toward closing the earnest money will be given to Escrow and be applied toward down payment or closing costs.

What happens if someone defaults? Do I get my money back?

This can be a very complex question to answer, depending on the situation. While this question can become difficult to answer in a simple question, generally if a buyer backs out for no legitimate reason, the seller would get the earnest money. The reverse holds true if the seller backs out for no legitimate reason. Then the buyer is refunded the money.