Tuesday, November 1, 2011 - Article by: North Star Bank - First National Bank Southwest -
Earnest Money Deposit? Option fee? Escrow? What does it all mean? Earnest money is a commitment for the prospective buyer to buy and start the clock.
Earnest money or simply earnest, or alternatively a good-faith deposit is a deposit towards the purchase of real estate made by a buyer to demonstrate that he/she is serious (earnest) about wanting to complete the purchase. When a prospective buyer submits an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon the state of the local market at the time of contract negotiations. Be prepared; do not lose your hard earned money because of neglect.
Option Fee - This is the period of time that you have to make a decision. If you back out, the seller usually gets to keep this money.
If the seller accepts the offer, the earnest money is held in escrow by a settlement or title company until closing and is then applied to the buyer's portion of the remaining costs. If the offer is rejected, the earnest money is usually returned, since no binding contract has been entered into. If the buyer retracts the offer or does not fulfill its obligations under the contract, the earnest is forfeited. You lose the money. Therefore, it is generally in the seller's best interest to see as high an earnest money deposit as possible. Do the research do not put your money at risk.
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