What is earnest money? As a buyer, how much do you need and what happens to that sum if the deal terminates?

Earnest money is the amount of money a buyer puts down to ask the seller to take their house off the market in order for them to do their due diligence during a certain time frame. That money is held in a non-interest bearing escrow account, typically by either the title company or the real estate company.

How much earnest money you need depends on what area you live in, but a typical scenario would be 1% of the purchase price of the house. It can always be more or less than that because it’s a negotiable item on the contract.

“Typically, earnest money accounts for 1% of the total purchase price.”

If the deal terminates, the earnest money is supposed to be returned to the buyer if the buyer did everything they were supposed to do according to the contract, the contingencies were not fulfilled, and they’re legally allowed to back out of the contract.

However, if the buyer simply changes their mind and has no legal ground for terminating the offer, the earnest money could be up for grabs. The earnest money isn’t simply handed back over to the buyer. There is paperwork called a “mutual release,” which must be signed by all parties stating how much of that money is to be returned to the buyer, whether that means all of it or some of it. There can be a lot of other issues that go along with returning earnest money, but that’s it in a nutshell.

If you have any more questions about earnest money or you’re thinking of buying or selling a home in the St. Louis metro area, don’t hesitate to give me a call or send me an email. I’d be happy to help you.