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What is Earnest Money and Why Do You Need It? (www.redfin.com)

What is Earnest Money and Why Do You Need It?

As you close in on making an offer on a home, your real estate agent – or the seller’s agent – will ask about “earnest money.” Earnest money is a type of security deposit, also known as a “good faith” deposit, offered to show the seller of a home that you’re serious about purchasing the property.

How does earnest money work?

Earnest money is the money you pay soon after a home seller has accepted your offer on a house. Earnest money assures the seller that you as the buyer are acting in good faith, and it provides them with some compensation in case you back out of the deal without a valid, contractual reason.

Once the seller’s agent is able to confirm that your earnest money has been deposited into an escrow account, the seller’s agent will mark the listing as a pending sale — in effect taking the property off the market. At this stage, various inspections, appraisals, and possibly other contingencies you had in the offer contact move forward to finalize the sale.

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