When you make an offer on a home and make your intentions known you want to purchase it, you are entering into an agreement with the seller. Once the seller accepts your offer, he or she will take the home off the market, losing any other potential offers.
Because of the risk to the seller, Chase explains, you may need to put down earnest money, which is money that shows your good intentions in the deal.
The main role of this money is to secure your deal and let the seller know you are serious about buying. It acts as a deposit that shows the seller he or she has a deal as long as all inspections and conditions go through well.
You and the seller will reach an agreement on the terms of the money. This will include how much you must put down if you can get a refund and how, what voids the deal and any other details about handling and use of the money.
The benefit of earnest money to you is that it can sweeten an offer you make. If you provide earnest money but competing offers do not, the seller may be more likely to take your offer. For the seller, it acts as a safeguard from buyers who end up walking away from the deal after they have lost time on the market and potential other buyers.
Earnest money is not always a requirement to buy a home. It often depends on the market, price of the home and typical agreements in your area.