Selling A Residence: What's The Earnest Funds Deposit?

Once an agreement between the buyer and seller is signed there are a couple very important things that need to happen. An agreement to sell a house must be in writing in the form of a contract, and contract law includes an element called "consideration", which sounds familiar of course. We all know it to mean, "kindness and thoughtfulness", but that is not the legal meaning of the word. As part of a contract, the consideration is something of value that is given as a pledge, as proof of the intention to do what is promised in the contract itself, which means the buyer will buy and the seller will sell. The consideration is usually money in a real estate contract, and it is a necessary element for a valid contract.

Assuming both parties come to an agreement on the price and terms of the sale of a house, what happens next is the seller and the buyer both sign a contract that specifies their agreement in writing. But the consideration needs to happen at the same time. The seller needs to be prepared before the contract is signed, because he needs to ask for an earnest money deposit check from the buyer to serve as consideration for the real estate sales contract.

The seller needs to think about two main things: how much earnest money to collect from the buyer and, what to do with the earnest money check once he receives it. Basically, an earnest money check is usually at least $500 and rarely more than $5000, all determined by the selling price of the house. There are three safe places for the earnest money deposit check to go, and those are a lawyer's trust account, a broker's trust account or a title company, and the choice is partially determined by the state where the house is located. There can be issues with the earnest money deposit when a sales transaction fails to close. Neither the seller nor the buyer can be absolutely certain that he will retain the money. Technically, it is part of the sales price and so if there is no sale the earnest money will be handled according to the contract itself and according to state law where the house is located.

So, now you know what it is, and you also know that you need to collect an earnest money deposit from your buyer when you are selling a house.


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