When an offer is made by a Buyer on a property, it may take a counter offer or two or more sometimes before the Buyer and Seller agree on all terms of the Purchase Agreement. But upon acceptance, the Buyer must deliver an earnest money check from them immediately, usually by their agent, made payable to the Broker who has the home listed. The purpose of earnest money is just what the name implies. It shows the Buyer is in earnest about buying the property. Even though there is a signed offer, if the earnest money check has not been delivered, then the Seller can void their offer and accept another offer. There is confusion sometimes on this point as some agents think they have two days to get the earnest money check to the Listing Broker. Realtors locally use a statewide standardized Purchase Agreement which clearly states that the earnest money is to be delivered upon acceptance. The only exception to this being if other terms were added in the agreement by the Buyer as a further condition such as “Buyer will deliver the earnest money to the Listing Broker within 24 hours after acceptance”. If the Seller agrees to that then the Buyer has 24 hours to deliver it instead of immediately. There is a state law which says that all earnest money must be deposited in the Listing Brokers account within two banking days from acceptance. That’s why some agents interpret this to mean they have two days to deliver it. But in reality, they are taking a big chance sometimes that the Seller will void their offer. I would imagine that their Buyer customers would be very upset if they lost the home they wanted because the agent did a bad job of informing them about how the procedure works…or even worse, the agent was lazy about jumping in their car and delivering the check quickly.
Earnest money is deposited and kept in the Listing Brokers account until the transaction is ready to close, and that sum is then applied to the amount that the Buyer must bring to closing. If for some reason the transaction were to fall apart before closing, the Seller does not automatically get to keep the money…nor does the Buyer automatically get it returned. The Listing Broker keeps it until there is a signed agreement between the Buyer and Seller as to the earnest money. If the Buyer and Seller still can’t agree about it, the Listing Broker will keep it until directed by a court as to how to disperse it.
In all the years I have taken part in transactions, I have never had one problem with earnest money. Usually transactions go without a hitch and in the very rare case where a transaction cannot be completed for some reason…possibly home inspections or the financing falls through…the Buyers and Sellers have always been fair about it.
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