What does “earnest money” mean in real estate? Is “earnest money” required?
A friend had a client who wrote on the memo line of his earnest money check “honest money.”
Earnest money according to the real estate glossary on RealLiving.com is:
“Earnest Money – A sum deposited with the broker at the time an offer is presented to show that a potential purchaser is serious about buying.”
In explaining earnest money to buyer clients I often use the words “good faith” to explain earnest money to Central Ohio buyers.
As a buyer earnest money is part of your down payment, it is not an additional fee. Buyers doing 100% financing, such as a VA buyer could use their earnest money at closing to pay for closing costs or to pay “pre-paids” or they may walk out of closing with a check for the amount that was held as earnest money during the transaction.
Earnest money varies by market. Traditionally we have some of the lowest earnest money deposits in the country, here in the Columbus area from what I’ve heard from real estate agents in other parts of the country.
Earnest money is not required but most sellers want to see some held.
Earnest money is held by the brokerage working directly with the buyer in a transaction in most cases in Central Ohio.
Earnest money is placed in a non interest bearing account maintained by the brokerage in Ohio, by state law.
The Columbus Board of Realtors purchase contract spells out each and every detail about how the earnest money is handled in a transaction.
Builders usually hold earnest money in new build situations, the purchase is usually written on the buiders contract which specifies that the builder holds the earnest money. Often in bank owned properties the seller will require the funds be held by the listing agent. There are usually addendums to the contract in the sale of a bank owned property, details about the earnest money are usually in the addendum.
Read the contract. Hire an attorney… a real estate attorney to read the contract for you too.
Previously on ColumbusBestBlog.com about earnest money:
If sale doesn’t close, can money be refunded in FSBO deal
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