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How Earnest Money Actually Works

By Matt Baumberger


Buying some land or a house will require one to go through quite a bit of steps as it is a process to purchase one of these things. Now one of the requirements that the buyer would have to comply with is to deposit a certain sum into the bank of the seller before the buyer actually goes through with the process. Now this money that is deposited is earnest money and is usually done before transactions.

For those who do not know the function of this type of deposit, it is to show the seller that the buyer is actually interested. It is more like a courtesy action that the buyer will have to make. This is to show that the buyer is ready to buy the property and promise not to back out.

Now as for the amount that one would have to deposit, this would usually depend on the agreement. Now the two parties will be the ones who will be agreeing on the amount. They will specifically put the amount of how much the buyer must deposit somewhere in the contract.

Now if one would want to know, there are actually factors that would affect the amount that will be deposited. The most common of these factors would actually be the market value. The sellers would usually base the down payments on how much the market value of the land or house is.

Now the impact of this deposit is simply that it gives the seller security. There is actually a possibility that even if the one who buys agrees to buy the house, he might actually back out in the last minute. So in order for the seller to actually feel safe, the purchaser has to make sure to make the deposit.

Of course if the buyer would really want to buy the land or house, he will have absolutely no qualms about giving a down payment. Now from the perspective of a purchaser, this would be a way for him to promise that he will actually buy the place. Of course once he puts down his money, he will have to go through with the transaction because he cannot get it back.

The reason for that is simply because once he deposits his cash, he can never get it back. Many people have the misconception that even if they deposited the cash, they can still get it back. However, the fact is that once it is in, it will never be able to get out.




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