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What the Heck is an Earnest Money Deposit?

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By : Andy Asbury    99 or more times read
For those who have played in the real estate game, the term earnest money deposit may be old hat. However, for those new to buying a home, the phrase may be completely foreign.

In simple terms, an earnest money deposit is a good faith deposit – a signal that the buyer is seriously interested in a property. While this can be a negotiable amount, it is not to be confused with a down payment.

How much do you need to deposit?

The amount of money acceptable varies from purchase to purchase, and may take in a number of factors. In areas where the market is hot, or strong, the buyers with the larger earnest money deposit offer may show the seller that they are more serious than others vying for the home.

Depending on the part of the country, such as coastal cities, earnest money deposits could be as high as 5% (or more) of the sale price. In smaller communities, it could be as low as $500 to $1,000.

Monies can be in the form of a personal check, a cashier’s check, a money order or cash.

Don’t make your check payable to the seller!

If the seller accepts the offer, a real estate broker, or a lawyer, holds the earnest money in escrow. Once the sale reaches the closing stage, the monies are applied to the remaining costs.

Do your research before you write the check.

One story tells of a woman who claims she lost a $2,500 earnest money deposit when she gave it to a person claiming to be a real estate broker, with official business cards and office stationery. He was a fraud and disappeared soon after. When she contacted the police, she learned she was not his first victim. Unfortunately, her money was gone.

Once a contract for the offer has been signed and the earnest money has been accepted by the seller, the buyer then has a finite amount of time to come up with the rest of the deposit. During that time, factors such as securing financing, home inspections, or other considerations can be handled.

In some states, buyers can pay an Option Fee, allowing them to walk away from a deal for any reason at all, within a certain period – usually 5 days to 2 weeks. If the deal goes ahead, this fee is applied to the purchase.

If the deal falls through, both the buyer and the seller must instruct the escrow company in writing to cancel the transaction. The funds are then returned to the buyer, minus a small cancellation fee.

If the buyer retracts the offer without reason, or at some point fails to meet the terms of the contract, the earnest money is forfeited.
For information about Minnesota condos, go to There you can search all Downtown St. Paul condos, in addition to getting the latest market information for the Twin Cities area.

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