What is Earnest Money?
Guest blogger National Land Reality discusses earnest money and if there is a difference between earnest money for home purchases compared to land purchases.
What is Earnest Money?
If you've bought a house then you've probably heard of the term, earnest money. In the residential real estate world, putting down earnest money is a way to let the seller know you're serious about buying; it's a “good faith deposit,” as they say.
The amount of earnest money depends on the price of the house. Typically, it's 1-5 percent of that purchase price. Once you put down that money, it is held in an escrow account where it will stay until you close on the house.
This same principle applies to earnest money in the land real estate industry. There’s generally no difference in what earnest money is and how it works when a land transaction is involved. Just the same, putting down an amount of earnest money when purchasing a farm or timber property, for example, is a way of letting the seller know you’re serious about buying.
The amount of earnest money you put down is considered negotiable. However, usually, the larger of an amount that the buyer puts down, the more serious he or she is about purchasing. If you don’t know where to start with an amount, your local land professional can help you make an informed decision on how much you should include with your offer.
Where Does it Go?
During the process of the land transaction, your good faith deposit usually goes to an escrow agent such as a title company. And once you get to the best part of the transaction (closing on the property!) the earnest money will go towards the purchase price of the property.
Work with a Land Professional
Navigating through the land buying process doesn't have to be complicated. Our Land Professionals are experts in their local markets. They can help you find the property you’ve always wanted and guide you every step of the way. From putting down earnest money to closing on the land of your dreams, our land professionals are there to help.
In addition to working with an experienced land professional, you’ll also want to talk to your local attorney if you have any specific questions about putting down earnest money when purchasing land. While this is just a basic overview of what earnest money is, this information should not be considered as legal advice.
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