What Is Earnest Money in Real Estate

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Real Estate

What Is Earnest Money? 

If you are purchasing Real Estate in Minnesota the sellers will typically request you to submit some earnest money shortly after your offer is accepted.  Earnest money will be set aside in a Trust Account form offer acceptance until closing where it is then credited back to the buyer for them to use towards their purchase.  

Why?  This money is set aside and used as an assurance that the buyer will follow through with their purchase or they will lose the earnest money.  Most offers are agreed upon with contingencies such as inspection, financing, or a sale of a home.  Once these contingencies have passed, then the earnest money can be at risk, meaning the seller could have a claim to keep the earnest money if the buyer walks away, breaches, the contract.  

As a seller it is wise to ask for a larger amount of earnest money for obvious reasons.  If you feel the buyer breached the contract and you hold onto the earnest money you want to make sure there is enough there for the buyer to think about it.  If it is a small amount it could cost you more in time and money to fight to keep it, usually attorney fees. 

As a buyer a larger amount of earnest money could make your offer more attractive to sellers in a competitive market or to improve price negotiations. 


If you are thinking of purchasing real estate please contact me or start your home search here!