Often, buyers wanting to purchase property offer earnest money to property sellers as a sign of their commitment. Also known in real estate as hand money, earnest money is basically a buyer-paid deposit to hold the property he intends to purchase.

Depending on the state, earnest money deposits may be kept strictly in non-interest-bearing escrow accounts until the sales related to them close. Typically, earnest money deposits are applied to property sale down payments and closing costs requirements. Real estate earnest money deposits and how they're applied are often guided by the purchase agreements those deposits support. Usually, real estate purchase agreements contain language noting just what will happen to a buyer's earnest money deposit under various scenarios.

Traditionally, earnest money deposits in a real estate transaction are applied to any down payments and closing costs owed by the buyer. In hot markets, real estate agents recommend earnest money deposits be for 2 percent to 3 percent of the offer being made.

Tying up a large amount of money in an earnest money deposit prevents that money from earning any interest, after all.

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Property sellers and buyers sometimes make incorrect assumptions about earnest money. Some property sellers mistakenly believe a failed sale gives them an automatic right to any earnest money.

Additionally, some property buyers assume they receive all earnest money back if their deals fail. Actually, in failed real estate deals, buyers' earnest money deposits typically end up with the buyers, minus any cancellation fees.

Most property purchase agreements, however, denote just when earnest money is refunded and to whom. In failed real estate transactions, earnest money deposits can end up being hotly disputed by both buyers and sellers. Real estate experts say that property sellers should never be allowed to hold their buyers' earnest money deposits.

In states like California, earnest money deposits are held by the settlement and title companies or brokers involved in a property's sale. Skip to main content. Home Guides Home Home Finance Buying and Selling. Home Guides Home Home Finance Buying and Selling Does My Earnest Money Count Towards Closing Costs?

Earnest money is often expected in real estate purchase offers. Applying Earnest Money Real estate earnest money deposits and how they're applied are often guided by the purchase agreements those deposits support. Earnest Money Amounts In hot markets, real estate agents recommend earnest money deposits be for 2 percent to 3 percent of the offer being made.

Refunding Earnest Money Property sellers and buyers sometimes make incorrect assumptions about earnest money.

Considerations In failed real estate transactions, earnest money deposits can end up being hotly disputed by both buyers and sellers. Understanding the Earnest Money Deposit RealEstateABC.

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The Earnest Money Deposit Money Under All About Earnest Money State of California Department of Real Estate: Trust Funds Retired Judges Mediation Center: Real Estate Transaction Disputes. Resources 2 Mortgage News Daily: What is Earnest Money and is it Possible to Get a Refund?

Can You Include Closing Costs in a Home Loan? Do I Need a Cashier's Check to Close on a House?

Do I Have to Put Money in Escrow When Buying a House? Related Articles Do You Pay Earnest Money if You Go with the FHA? How to Buy a House and When Is the Initial Deposit Due?

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What Are Typical Closing Costs for First-Time Home Buyers? How Important Is a Land Surveyor for a Buyer of a Home? How to Close on a Foreclosure.

Making an offer on a house, and paying Earnest Money

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