Earnest Money: A Primer for New Agents

Real estate agents are expected to understand and explain earnest money deposits to their clients, including why they’re necessary and how they affect the home buying process. A deposit like this shows the seller that a buyer is serious—in other words, “earnest” in their intention to purchase the house.

Knowing how earnest money works is essential knowledge for both the buyer’s and the seller’s agents. The point of the earnest deposit is to stop would-be buyers from making offers on multiple houses they’re interested in, which would result in all of those properties temporarily taken off the market until the buyer commits to one of them. For this reason, it’s unusual for a seller to entertain an offer on their house without it being backed up by a deposit that a buyer could lose.

If the sale proceeds successfully, the earnest money can be used for the down payment or the closing costs of the sale. It can be looked at by buyers as putting aside some funds to cover part of these later costs.

Since it is a deposit, it does mean that there are many situations that allow buyers to reclaim these funds when things don’t go according to plan. A well-trained buyer’s agent realizes that earnest money needs to be protected from loss.

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