What Is Earnest Money?

In a real estate deal, earnest money is deposited by a buyer within the first few days of a real estate contract being executed. It expresses the buyer’s “earnest intent” to buy a property. The amount of earnest money that a buyer puts down varies, but usually it’s around $1,000 to $5,000. A buyer who wants to make a stronger offer will put down more earnest money. Earnest money is held by an escrowee for the benefit of the parties; it is usually a real estate company, an attorney’s office or a title company. The check is made payable to that company. The earnest money provides the consideration to make the contract effective. If earnest money is not tendered within the time frame required by the contract, there is no contract. The earnest money is ultimately sent to the title company and is credited to the amount of money the buyer needs to close the deal.

Clients frequently ask when earnest money can be kept by the seller. There are a number of provisions in a real estate contract that, if not satisfied, require the earnest money to be returned to the buyer. The main provisions include the attorney review, home inspection, and mortgage contingency provisions. Under the attorney review proivision, either attorney has the opportunity to disapprove of the contract within the first 5 business days after the contract being ageed upon, with the earnest money being refundable to the buyer. Similarly, if the parties cannot reach an agreement on home inspection issues, the earnest money is refunded to the buyer. Where a mortgage is involved, if the buyer does not receive a loan approval and the loan approval is denied within the mortgage contingency period, the earnest money is refunded to the buyer. However, if a buyer or a seller breaches the terms of the real estate contract, the escrowee doesn’t have the right to unilaterally determine who gets the earnest money. If both parties agree in writing that the earnest money is to be released to either party or if some compromise is reached, then the escrowee can return the earnest money as instructed. Beyond that, one of the parties would need to file a lawsuit against the other party, and a judge would determine where the earnest money needs to go.

This is only a general overview of earnest money. Mag Mile Law has very experienced real estate attorneys with years of experience representing both buyers and sellers of real estate all across the Chicagoland area. If you are buying or selling a home, email [email protected] or call (708) 576-1624 today!

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