If you’ve dabbled in the world of real estate, you may have heard the term ‘Earnest Money’ being thrown around a bit, especially if you have ever had the chance to submit an offer on a property. While not mandated, many Agents will insist the inclusion of a copy of your ‘Earnest Money check’ when submitting an Offer to Purchase, especially if the home is a bank owned foreclosure.

Earnest money is an important element of the Offer to consider. One reason is it’s effort to prove to the Seller that you are a serious Buyer and committed “earnestly” in the purchase of the property. The monetary value of the Earnest money will vary from transaction to transaction and also depends on the stipulations of any REO (Real-Estate-Owned or Foreclosure) entity as well as what is common practice in your area of the market. Many times, if there is a lot of interest on one property in particular, a larger Earnest deposit (say 10%+) will stand out to the Seller as an earmark for stronger offer terms.

In addition, Earnest money acts as a safeguard against willy-nilly offers and Buyers floating in and out of a Sellers life. Not many people are willing to walk away from an Earnest money deposit, therefore the deposit acts as a financial incentive for the Buyer to perform on the purchase as stated.

So where does the Earnest money go, once given to your Realtor for deposit? Here in Texas, the Earnest money is deposited with the Title Company in a “trust” account. This account is untouched and is considered to be joint, in that it belongs to both Buyer and Seller. If a binding contract is made but not kept and the Buyer cannot fulfill the obligations of the contract, the Earnest money can become forfeited. However, if you should make it to closing, this amount is applied to your down payment and closing costs, which will be noted on your Settlement Statement.