Definition of 'Earnest Money'
A deposit made to a seller showing the buyer's
good faith in a transaction. Often used in real estate transactions, earnest
money allows the buyer additional time when seeking financing. Earnest money is
typically held jointly by the seller and buyer in a trust or escrow account.
Investopedia explains 'Earnest Money'
An earnest money deposit shows the seller that
a buyer is serious about purchasing a property. When the transaction is
finalized, the funds are put toward the buyer's down payment. If the deal falls
through, the buyer may not be able to reclaim the deposit. Typically, if the
seller terminates the deal, the earnest money will be returned to the buyer.
When the buyer is responsible for retracting the offer, the seller will usually
be awarded the money.
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