You Cannot Be Serious! Earnest Money for Buyers and Sellers

Many residential real estate contracts require that the buyer make a deposit of “earnest money” at the time the contract is signed. But what is earnest money - and how does it benefit buyers and sellers?

At its simplest, earnest money is like a deposit towards the purchase price, designed to ensure that both parties are “earnest” - or serious - about performing the contract. The deposit is given by the buyer to a real estate broker within a few days after the contract is signed and distributed by the broker to the seller on the date of closing (assuming both parties perform). This can be helpful to the seller; for example, if the buyer refuses to buy the house, she forfeits her earnest money.

Earnest money provisions can also benefit the buyer, however. For example, most real estate purchase contracts require the property to be in the same condition at closing as it was on the date of acceptance, except for normal wear and tear. If a buyer discovers undisclosed property damage at a final walkthrough before closing, the seller has breached these terms of the contract; some, or all, of the earnest money may need to be returned to the buyer.

If the parties cannot agree about the distribution of the earnest money, Ohio law permits the real estate broker to hold the funds until the dispute is resolved - or return them to the buyer if the dispute is not resolved within two years.

It’s important to remember that every contract is different, so it is essential to carefully review the language regarding earnest money in your agreement before acting. For assistance with your real estate contract, contact our office today.