Earnest money is one of the words that gets thrown around a ton in real estate, but some people don’t understand exactly what the process looks like. Here at Homes By Valor, we’re all about education, so we want to make sure that you have a complete understanding of the process, so if this article doesn’t clear up everything for you, please reach out, and we’ll be happy to help however we can! 

What is earnest money?

Earnest money is money owed by the buyer at the time of going under contract. Usually it’s around 1% of the purchase price of the home, and a period of approximately 3 days after going binding is how long the buyer has to get it turned in. 

Why do buyers owe earnest money?

Earnest money is the buyer’s way of showing that they’re serious about buying the home. In other words, it’s an amount of money that shows that they are willing to put some skin in the game. 

Who does the earnest money belong to?

As long as a buyer follows the rules of the contract and doesn’t leave the contract without the protection of a contingency, the earnest money will go toward the amount of money owed at closing. However, if they break the rules and leave without protected cause, that money is going to belong to the seller since it’s the buyer’s way of paying the seller back for the time they took their home off the market and trusted the buyer to follow through.

What protects a buyer’s earnest money?

While every contract is different, there are typically three contingencies that protect a buyer’s earnest money: Due diligence, Financing, and Appraisal. Due diligence is the period where the buyer typically gets the home inspected, does research on the area, and just generally figures out if there are any dealbreakers they didn’t previously know about. They can leave for any reason and get their earnest money back during this period. Once this time period is over, however, there are typically only two specific reasons a buyer is able to leave and keep their earnest money. One is the financing contingency, which protects the buyer’s EM in case they can’t qualify for financing for some reason, and the other is the appraisal contingency, which allows the buyer to leave the contract without penalty in the event that the home doesn’t appraise for the agreed upon sales price. 

How do I submit earnest money when I go under contract?

This is a good question for your agent, since every contract allows different ways. However, the most common options are by way of a check or a wire. 

Who holds my earnest money while we are under contract?

In Georgia, a third party holds onto your earnest money while you are under contract, and this third party is typically either your real estate agent or your attorney. 

How can I protect my earnest money?

Listen to your agent and follow the rules of the contract. One of your agent’s primary responsibilities is to help you hold onto your earnest money by not breaking any terms of the contract. 

We hope this article has helped you learn enough about earnest money that you feel ready to put it down when the time comes. Please reach out and ask us any other questions you have, and we’ll be happy to help any time. You can reach us at (678) 242-9981 or submit any questions through our contact us question form. We hope to talk to you soon!