What is Earnest Money?

Dated: May 25 2020

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When buying a house, the earnest money is given to the seller and basically says, "Hey, we want you to take your house off the market. And this money is acting as good faith that we're going to move forward with the purchase of your property." The earnest money deposit can be for any amount. It will be held in escrow and then applied to the total purchase at the closing table.


The day after the contract goes binding is when your due diligence period begins. This will be an agreed-upon amount of time in which you have to investigate the property. Schedule your pest, termite, and home inspections and request and review the Homeowners Association Documents. Practice driving your commute to and from work, drive around, check out the neighborhood, and do any kind of homework that you want on the property.


During the due diligence period, if we find an issue or defect that’s a deal-breaker, you can cancel the contract, in writing and still get your earnest money back without penalty.


There are usually three contingencies when buying a house: financing, appraisal, and inspection. Financing will give you time to sit with your lender and make sure that you can get approved and get your loan in place.

The inspection contingency gives you time to bring in any inspectors, termite, home, and pest, ect. and make sure there are no material defects in the property. And the appraisal gives you protection in case the home does not appraise. In which case, you can request your earnest money back and cancel the contract, or you can go back to the seller and renegotiate the sales price to match with the appraisal.


Let’s say you are moving full steam ahead with this deal, you've made it through your due diligence period, you've removed all the contingencies and you're a couple of weeks out from closing and you see another house that you like even better than this one. You decide to cancel the contract. Unfortunately, this is probably going to be considered a breach of contract and you will not be entitled to your earnest money


You never want to jeopardize your earnest money. That's why it's essential to work with a real estate agent who can guide you through the process, keep you on track and make sure that you've completed all your due diligence tasks in the time that's allowed.

I never want my clients to be in breach of contract and risk losing their money. So I always make sure that they completely understand how the due diligence process works, what our specific timelines are, and what we can do if we run into any issues.

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Misty Harris

Meet Misty Harris - a U.S Army Veteran and licensed professional REALTOR with JP & Associates Realtors Metro Atlanta. Misty has always been passionate about real estate. It began with her admiration ....

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