Earnest money is money you give to the seller, or your or the seller’s brokerage firm, or any entity agreed upon by the parties to hold as Escrow Agent (such as either party’s closing attorney) to show your good faith when making an offer to purchase the seller’s property.
Although no law requires it, sellers typically do require it.
It is held in trust/escrow during the buyer’s Due Diligence Period and is typically refunded to the buyer ONLY and IF the buyer terminates the purchase contract in writing by 5pm on the last day of the Due Diligence Period.
The amount is negotiable between you and the seller. It is typically a small percentage of the purchase price and can vary. In the Outer Banks market, it is often about 1% of the Contract purchase price.
The purchase contract governs where earnest money will go. Most buyers prefer to have real estate agents or attorneys hold the earnest money deposit. Because they are licensed by the state and required to deposit the money in a trust or escrow account, this reduces the risk that the monies will be improperly used.
The purchase contract should specify the amount(s) to be paid, when the payments are to be made, who will hold it as Escrow Agent, whether it will be credited against the purchase price at closing, and what may happen to it if the transaction does not close.
Typically in the OBX market, if the buyer defaults or breaches the purchase contract, Earnest money is not refunded to the buyer.
Earnest money does typically “count towards” the purchase price at closing, however. The amount is subtracted from the buyer’s down payment and other closing costs brought to settlement/closing to make the purchase.
All of the above is negotiable between you and the seller when you make an Offer to Purchase and your agent will guide you through the process.
