{"id":10754,"date":"2019-12-02T11:45:20","date_gmt":"2019-12-02T11:45:20","guid":{"rendered":"https:\/\/kenyahomes.co.ke\/blog\/?p=10754"},"modified":"2019-12-03T08:04:29","modified_gmt":"2019-12-03T08:04:29","slug":"homebuying-understanding-earnest-money","status":"publish","type":"post","link":"https:\/\/kenyahomes.co.ke\/blog\/homebuying-understanding-earnest-money\/","title":{"rendered":"Homebuying: Understanding Earnest Money"},"content":{"rendered":"\n

Earnest money is a deposit made to a seller that represents a buyer’s good faith to buy a home. The money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing. <\/p>\n\n\n\n

In many ways, it can be considered a deposit on a home, an escrow deposit, or good faith money.<\/p>\n\n\n\n

When Is Earnest Money Required?<\/strong><\/h5>\n\n\n\n

In most cases, the earnest money is delivered when the sales contract or purchase agreement<\/em><\/a> is signed. But it can also be attached to the offer. Once deposited, the funds are typically held in an escrow account until closing. At which time the deposit is applied to the buyer’s down payment and closing costs.<\/p>\n\n\n\n

When a buyer decides to purchase a home from a seller, both parties enter into a contract. The contract doesn’t obligate the buyer to purchase the home. This is because reports from the home appraisal<\/a><\/em> and inspection may later reveal problems with the house. The contract does, however, ensure the seller takes the house off the market while it’s inspected and appraised. <\/p>\n\n\n\n

To prove the buyer’s offer to purchase the property is made in good faith, the buyer makes an earnest money deposit (EMD).<\/p>\n\n\n\n

Can A Buyer Ask For The Money Back? <\/strong><\/h5>\n\n\n\n

The buyer might be able to reclaim the earnest money deposit if something that was specified ahead of time in the contract goes wrong. For instance, the money would be returned if the house doesn’t appraise<\/a> for the sales price<\/em><\/a> or the inspection<\/em><\/a> reveals a serious defect\u2014provided these contingencies are listed in the contract.<\/p>\n\n\n\n

However, it isn’t always refundable. For example, the seller gets to keep the earnest money if the buyer decides not to go through with the home purchase for contingencies not listed in the contract. Or if the buyer fails to meet the timeline outlined in the contract. The buyer will, of course, forfeit the earnest money deposit if they simply have a change of heart and decides not to buy. <\/p>\n\n\n\n

Earnest money is always returned to the buyer if the seller terminates the deal.<\/p>\n\n\n\n

Related: Can a Seller Keep a Buyer\u2019s Earnest Money Deposit?<\/a><\/p>\n\n\n\n

Can The Buyer Choose The Earnest Money Amount?<\/strong><\/h5>\n\n\n\n

While the buyer and seller can negotiate the earnest money deposit. It often ranges between 1% and 2% of the home’s purchase price, depending on the market. In hot housing markets, the money might range between 5% and 10% of a property’s sale price.<\/p>\n\n\n\n

While the earnest money deposit is often a percentage of the sales price, some sellers prefer a fixed amount. Of course, the higher the earnest money amount, the more serious the buyer. Therefore, a buyer should offer a high enough earnest deposit to be accepted. But, not one so high as to put extra money at risk.<\/p>\n\n\n\n

Earnest money is usually paid by certified check, personal check, or a wire transfer into a trust or escrow account that is held by a real estate brokerage, legal firm, or title company. The funds are held in the account until closing when they are applied toward the buyer’s down payment and closing costs. <\/p>\n\n\n\n

It’s important to note that escrow accounts, like any other bank account, can earn interest. <\/p>\n\n\n\n

Protecting Your Earnest Money Deposit<\/strong><\/h5>\n\n\n\n

Prospective buyers can do several things to protect their earnest money deposits.<\/p>\n\n\n\n