What Is Earnest Cash? – NerdWallet


Earnest cash is a good-faith deposit you make on a house to indicate the vendor you are critical about shopping for. The cash is deposited after the vendor has accepted your provide and is normally stored in an escrow account. When the sale closes, you’ll be able to hold the money or apply the cash towards the acquisition.

Though it isn’t required, be ready to supply earnest cash when searching for a home, particularly in a good housing market. In any other case you will have a tough time competing in opposition to different consumers.

How a lot earnest cash to supply

A typical earnest cash deposit is 1% to 2% of the house worth, in accordance with the Nationwide Affiliation of Realtors. However that quantity varies relying on the native actual property market. Sellers usually tend to count on increased quantities in a hot market — when there are extra consumers than houses on the market.

Speak to your actual property agent about how a lot earnest cash to supply.

How does earnest cash work?

After accepting a proposal, the vendor takes the house off the market till the sale closes, which may take a number of weeks. The earnest cash helps guarantee the vendor {that a} purchaser is appearing in good religion, and it supplies them with some compensation if the client backs out of the deal with no legitimate cause.

Your buy settlement will spell out how the earnest cash deposit is dealt with. Usually the cash is stored in an escrow account held by an escrow firm, an actual property title firm or the vendor’s actual property company.

Nerd tip: Do not give the earnest cash on to the vendor since you might need hassle getting it again if issues go awry.

The earnest cash is disbursed at closing. Consumers normally put it towards closing costs or the down fee.

You could have to forfeit the earnest cash to the vendor in case you break the phrases of the acquisition settlement.

Is earnest cash refundable?

The acquisition settlement will embody contingencies, which define the circumstances underneath which you’ll be able to stroll away from the deal with out forfeiting your earnest cash.

Listed below are some frequent contingencies that allow you to retain your deposit:

  • Mortgage contingency: You are unable to safe financing.

  • Appraisal contingency: The appraisal is available in decrease than the sale worth.

  • Inspection contingency: The house inspection uncovers issues.

Work intently along with your actual property agent to determine what contingencies you need to embody within the contract.

In aggressive markets, some consumers comply with nonrefundable earnest cash, which suggests the vendor will get to maintain the money if the sale falls by, whatever the cause. If you happen to’re tempted to make use of this technique, be sure to perceive the dangers and do not provide cash you’ll be able to’t afford to lose.

When can the vendor hold my earnest cash?

The vendor could hold the earnest cash in case you break the phrases of the acquisition settlement, similar to in case you miss deadlines within the contract or determine to not purchase the house since you discover a higher property.

Have your actual property agent stroll you thru the complete buy contract earlier than you signal something. Be sure to perceive your finish of the cut price and in what circumstances you’ll hold or forfeit the earnest cash.

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