What is Earnest Money?

Step 2 in Edy’s series The Escrow Process for Buyers is settling your earnest money.

What It’s For.  Submitting an offer for a property will include a sum of earnest money which the Buyer agrees to put down, and which can be held by the Escrow Company.  I often explain it to people as a sum the Buyer puts down to assure the Seller that it’s a serious offer.  This sum of money could be anything, but usually 1% of the purchase price would be considered a little light, and 3% quite substantial.  Like if it’s a $500,000 offer, then $5,000 might be a good sum to start out with.  If the Seller has doubts about the Buyer’s seriousness or the Buyer wants to make it look like “a really good offer” or offset a low offer price, either side might chose to try to make it more.  The earnest money will be refundable during any contingency periods under certain circumstances (like the inspection period, or under the financing contingency).  Other than that, if the contingencies are waived and the closing is proceeding and the Buyer decides not to buy the home, the Seller (and his Broker) usually would get to keep the earnest money as specified in the mutually accepted contract.  Under certain circumstances there will be other results as well, depending on the contract.  Ask me for more info on this if you’re wondering.

What Happens to the Earnest Money?  It is held by the Escrow Company (if so specified, we have always done so) and it is applied toward the Buyer’s downpayment at closing.  The buyer could also potentially direct Escrow to apply it to closing costs if for some reason there is no downpayment.

Timing.  When you sign the contract for making the offer, we will ask you for the earnest money check, made out to the Escrow Company we’ve specified, and we hold it till we get mutual acceptance.  From mutual, in the State of Washington your agent has 3 days to get the check to the Escrow Company, but our brokerage requires us to do so within 24 hours in order to keep things crisp.  This would be impacted if we got mutual acceptance late Friday night or on Saturday, however, as Escrow companies are open typically Monday to Friday only.  In that situation, it would go in on Monday morning.

Edy Kizaki
Realtor, Broker
206-249-2914
edy@seattlepowersearch.com
www.seattlecentric.com