A Deposit in Relation to Buying Real Property
Earnest money (many times called a good-faith deposit, earnest dollar, deposit, or Ernest Haby) is a deposit in relation to buying real property or a public proposal for government contract provided by a purchaser or registered service provider to show that they are sincere (earnest) about their desire to complete a purchase. When a purchaser submits an offer to purchase residential real estate, they normally sign a
purchase contract and pay a amount satisfactory to the seller (in a majority of situations a check is drawn to the order of an
escrow or title company) for the deposit of earnest money. This amount can vary a great deal and is dependent upon local customs and local market conditions at the time the contract is written.
In an extremely active market (as can happen on the West or East coasts of the USA such as 2000 thru 2005) purchase money deposits became 5% or more of the purchase price and even more. In many regions, as modest as $500 to $1000 is common.
If the seller signs the purchase agreement, the deposit is held by the escrow company or held in trust by the
company writing the offer (in states such as New York or California) or by a escrow facility (in states such as
close of escrow and is subsequently applied toward the buyer's share of the costs that remain. If the purchase offer is not accepted, the deposit money is most often returned to the
buyer, as no binding agreement has been agreed upon. If the buyer withdraws the offer or in some way does not meet its requirements under the terms of contract, the earnest may be forfeited. Consequently, it is normally in the best interest of the
seller to see as large a deposit as feasible.
In the olden days, the earnest deposit was labeled an earnest penny, Arles penny, Argentum Dei. or God's penny as it signified money provided to secure a bargain, particularly for the hiring or purchase of a servant. Another related expression was luck money, being an amount provided back to the purchaser by the seller upon the close of a transaction, for luck.
Mar 1, 2011
Legal Real Estate Books