What is an Earnest Money Agreement?

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An Earnest Money Agreement is a great way for a potential buyer or renter of real estate to show that he or she is serious about purchasing or renting. In a way, it's a lot like a security deposit. Generally, both parties will sign an Earnest Money Agreement and then the potential buyer will deposit a certain sum of money. This is sometimes called an "earnest of good faith" and is meant to demonstrate that the buyer is serious about the purchase. Oftentimes, this original payment is held by a neutral party, such as an escrow account or a trust, and the payment is usually credited towards the total purchase or rental price. Once the payment is made, the seller then removes the property from the market and both parties work out the final details. Note also that while an Earnest Money Agreement is most often used for real estate purchases, it also works for renters who want to show their prospective landlord they're serious about moving into a property.

Use the Earnest Money Agreement document if:

You want to make a serious offer on real property
You have agreed to sell real estate to a buyer but the details aren't yet finalized

An Earnest Money Agreement is a commonly accepted first step for property sales or rentals. It helps show that the buyer or renter is making a serious offer and often serves as a kind of down payment when the sale actually goes through. An Earnest Money Agreement (or Earnest Money Deposit) memorializes the amount of money in question and helps keep both parties honest until the actual purchase is made and the deed is transferred. Other names: Earnest Payment, Earnest Money Deposit, Earnest Money Contract

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