What is earnest money?

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A buyer offers an amount of money called earnest money as a good faith deposit towards purchasing of a home. The buyer deposits earnest money at the title company at the time of the contract.  It is credited to the buyer at closing. Around 1% of the price is respectable, the greater the amount the greater negotiating position.
There are various legal remedies and rules to handle disputes over earnest money when a contract terminates. The question of unlawful termination is a ultimately a legal issue for a courtroom. Rarely, does a disagreement get far enough getting attorneys involved, yet get to the courtroom. By law, a broker like myself, or agent cannot give legal advice. Questions of termination and litigation should be answered by attorneys.
Most title companies operate within the following rule. During the option period, a buyer can terminate for any reason and get back the earnest money without consent of the seller. After that, distributing the earnest money requires both buyer and seller to agree in writing. Without agreement, it stays at the title company. Title companies do not act for either parties without agreement. 
Unbacked by fact or statistics, the buyer gets the earnest money 99% of the time. Unless, they are willing to give or share it with the seller. Of course, this is a legal issue and every party facing contract termination should consult an attorney for advice. Why does the buyer get it? Two reasons. One, there are more than 30 contract clauses giving the buyer the lawful right to get it back. Second, an unresolved contract dispute creates a “Cloud” over the title of the property and the seller may not be able to sell the property to anyone else until resolution of a dispute. See the article “If the contract terminates who gets to keep the earnest money?” for further discussion.


Notice: This website contains general information about legal and financial matters. The information is not advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal or financial advice from your attorney, accountant or other professional services provider. If you have any specific questions about any legal and financial matter you should consult your attorney, accountant or other professional services provider.