Earnest Money can demonstrate a buyer’s intent to follow-through with a real estate contract and also entice a seller to accept an offer. This blog article will primarily look at the Earnest Money as it applies to residential real estate transaction, and specifically in the Multi-Board Residential Real Estate Contract (“MBRE”) 7.0. The MBRE is not the only real estate contract template that provides for earnest money.

Earnest Money In Real Estate
Earnest Money In Real Estate Transaction
Earnest Money In Florida Real Estate
Earnest Money In Real Estate
What Is Earnest Money

Do I have to deposit earnest money when buying real estate?

No. Earnest Money is not required, like many other aspects of a real estate purchase agreement earnest money can be negotiated. However, it is quite common, and a Seller may be reluctant to accept an offer without earnest money.

Earnest money is usually paid by certified check, personal check, or a wire transfer into a trust or escrow account that is held by a real estate brokerage, legal firm, or title company. The funds are held in the account until closing when they are applied toward the buyer’s down payment and closing costs. Put simply, the sellers can keep your earnest money deposit if you break the terms outlined in your contract. Nearly every real estate contract has a few contingencies that will allow you to walk. Earnest money goes into an escrow account usually held by the real estate broker or the title company. If a deal falls apart because the house doesn’t pass a home inspection, the earnest deposit is usually returned to the buyer. Earnest money may be used towards the closing costs during the.

How much should the Earnest Money amount be?

This is something to discuss with your broker, if you are using one. Some brokers may use 1% of the purchase price as a starting point. However, if the listing is more competitive (multiple offers), then a broker might advise their buyer to increase the earnest money, in order to make their offer more competitive. Like many other aspects of the agreement, the amount of earnest money can be negotiated between the parties.

Who holds the Earnest Money?

The Earnest Money is held in trust by an Escrowee for the mutual benefit of the parties to the contract. The Escrowee can be designated in the offer or determined during an attorney review period, it can be the Buyer’s/Seller’s Brokerage the Buyer’s/Seller’s Attorney, or any other designated party. It is important to note that an Escrowee is responsible for complying with the terms of the earnest money disbursement, and may be held liable for improper distributions.

Can Earnest Money be increased as the purchase and sale progresses to closing?

Yes. Some contracts may call for the deposit of initial earnest money, followed by additional earnest money to be deposited at a later date, such as after the Attorney Review and Inspection periods are completed.

Is the Buyer’s liability limited to the amount of the Earnest Money?

No. The Earnest Money is not a default amount (or liquidated damages amount) to be paid in the event the Buyer breaches the real estate purchase agreement. Parties can certainly limit damages to the amount of the earnest money, which is not an uncommon request in attorney modification letters. Without any such limiting language/agreement, the Seller can seek to recover damage in excess of the Earnest Money amount, if the Buyer breaches the contract.

What happens to the Earnest Money if the Real Estate Contract is declared null and void?

If using the MBRE 7.0 the disbursement of earnest money is generally governed by paragraph 26, which requires Earnest Money to be refunded upon the joint written direction by the Parties to the Escrowee, or upon an entry of an order by a court of competent jurisdiction. Without consensus amongst the parties, either party may file suit seeking a court order directing the disbursement.

What can the Escrowee do if there is a dispute over the disbursement amount(s)?

If the parties cannot agree in writing as to the disbursement of earnest monies, either party can seek a court order directing disbursement. If using the MBRE 7.0, the Escrowee may elect to give written notice as to how they intend to disburse the funds at least 14 days prior to the date of intended disbursement. Absent an objection by either party, the Escrowee may disburse the funds as so stipulated in their written notice. Alternatively, or in addition to the above option, the Escrowee may file lawsuit for Interpleader and deposit the earnest money with the Court, less any amount to reimburse the Escrowee for court costs and reasonable attorney’s fees. An Escrowee that fails to properly handle/disburse the Earnest Money may be held liable.

Since Earnest Money is a common part of many residential real estate contracts, it is important for Brokers, Agents, Sellers and Buyers to understand the implications of using Earnest Money. If you would like to speak with an Attorney regarding the sale or purchase of real estate in Illinois, please reach out Christian Blume, 773-706-7514.

This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

Earnest money is an amount of money you put down to show you’re serious about purchasing a home. It’s also known as a good faith deposit. In most cases, the earnest money is delivered when the sales contract or purchase agreement is signed, but it can also be attached to the offer. Once deposited, the funds are typically held in an escrow account until closing, at which time the deposit is applied to the buyer’s down payment and closing costs.

When a buyer and seller enter into a contract, the seller takes the home off the market while the transaction moves through the entire process to closing. The contract doesn’t obligate the buyer to purchase the home, because reports from the home appraisal and inspection may later reveal problems with the house. The contract does, however, ensure the seller takes the house off the market while it’s inspected and appraised. To prove the buyer’s offer to purchase the property is made in good faith, the buyer makes an earnest money deposit (EMD).

The buyer might be able to reclaim the earnest money deposit if something that was specified ahead of time in the contract goes wrong. For instance, the earnest money would be returned if the house doesn’t appraise for the sales price or the inspection reveals a serious defect—provided these contingencies are listed in the contract.

While the buyer and seller can negotiate the earnest money deposit, it often ranges between 1% and 2% of the home’s purchase price, depending on the market. In hot housing markets, the earnest money deposit might range between 5% and 10% of a property’s sale price.

While the earnest money deposit is often a percentage of the sales price, some sellers prefer a fixed amount, such as $5,000 or $10,000. Of course, the higher the earnest money amount, the more serious the seller is likely to consider the buyer. Therefore, a buyer should offer a high enough earnest deposit to be accepted, but not one so high as to put extra money at risk.

Earnest Money In Real Estate

How soon is earnest money due?

The contract sign that you will honor the real estate purchase contract. It may also serve as liquidated damages that the selle

Earnest Money In Real Estae