Earnest money is a sum of money that you may be required to pay when you make an offer to buy a house or other property. It is usually a small percentage of the total purchase price, typically around 1% of the purchase price, and is meant to show that you are serious about your intention to buy the property.
When you make an offer on a property, you will usually be asked to provide earnest money to the seller’s real estate agent brokerage or the title company, who will hold it in an escrow account until the sale is finalized. This money will be applied towards the down payment or closing costs if the sale goes through, but if the sale falls through, you may forfeit the earnest money to the seller as compensation for their time and effort.
The purpose of earnest money is to demonstrate to the seller that you are a serious buyer and that you are committed to following through with the purchase. It also serves to protect the seller in case the buyer decides to back out of the sale without a valid reason. So, it’s important to be certain that you really want to buy the property before making an offer and putting down earnest money.