Breaking Down Earnest Money

When you buy a home in a seller’s market (i.e., when there are more motivated buyers than properties available), you must understand the different elements of the deal. Homeowners who are selling don’t want to accept an offer, sign an agreement, take their home off the market, and go through the due diligence process only to have to start over because a buyer walks away. 

Granted, there may be many acceptable reasons for a buyer to back out of a deal. But leaving a sale to pursue another opportunity like another house could be seen as a waste of the seller’s time and effort. Earnest money is one of many opportunities for buyers to convey how serious they are about buying a particular house. 

What Is Earnest Money?

One of the more common questions about earnest money is how much someone should offer. What amount demonstrates to the seller that I am willing to see this deal through to the closing table? Here in Chicago, there are general guidelines (which we will go over), but there is not a set amount. 

The first time earnest money will come up is when the seller has accepted your initial offer. Although a seller will only put down about $1,000 during this time, this is only one of two earnest money deposits. After the agreement gets signed, your attorney will review the entirety of the offer to ensure that it is in your best interest to continue. Upon completion of that next phase, you make your final earnest money payment. Again, there is no set number, but buyers will put down anywhere between 3-10% of the home’s sale price. 

Where Does the Money Go?

The seller does not receive your earnest money until closing and the money you pay gets subtracted from the sale price. Earnest money is not in addition to the cost of the home. The funds can be held in escrow (in an account to the side), by an attorney, or even a broker in the interim.

If you do not go through with the home purchase, you may be able to receive the return of your earnest money. Whether it is returned depends on why you walked away. There are several legitimate ways a buyer can back out of a deal. Under which circumstances are you able to cancel your contract? One of the many roles of the attorney is to ensure you have options and will not be contractually obligated to buy a house that you have legitimate and legal reasons to walk away from. 

Auricchio Law Offices

For more than 20 years, Auricchio Law Offices has been helping clients navigate the challenges with buying and selling real estate. If you have any further questions about commercial or residential real estate, contact Auricchio Law Offices to schedule your consultation

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Auricchio Law Offices

Auricchio Law Offices in Chicago provides a complete range of real estate services. We facilitate residential and commercial real estate transactions, advise and represent condominium associations, and represent property owners in real estate litigation. Whatever your real estate issue, we will work diligently to achieve your goals in a timely and efficient manner.

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