What is Earnest Money?
Earnest money shows that the buyer is serious and willing to commit money towards a home purchase. In most cases you pay the earnest money at the time an offer is accepted. The earnest money is credited to the buyers upon closing of the home. The Earnest money is deposited into a escrow/trust account that is typically held by the sellers broker, title company or attorneys firm.
Typically on average you can expect to pay 1-2% or the total purchase price although it could be more or less than average in some markets.
What happens if the deal falls apart?
The money could go back to the buyer or seller. It is not as simple as it sounds as both buyer and seller have to agree to who will get the money. The money cannot be transferred until both parties agree. In some cases it may be split between both parties. The deal could fall through due to a home inspection issue, home not appraising at purchase price, sellers not able to deliver clean title or something else. Additionally the buyer may have done something to cause the deal to end and the seller y be less likely to agree to the earnest money for instance if the buyers does something that causes their mortgage to be denied, they don’t work in good faith when working out repairs or just change their mind and no longer wan the house the sell may decide they are keeping the earnest money. The real estate company, Title Company or attorney will hold onto the earnest money until both parties agree who gets the money or a court orders payment to one of the parties.