Definition – A deposit made to a seller showing the buyer’s good faith in a transaction. Earnest money is typically held by the seller (or buyer) in an escrow account.
An escrow account is a temporary pass through account held by a third party during the process of a transaction between two parties.
For this discussion, I will limit my comments to a real estate contracts used in Georgia. The contracts in Georgia (provided by the Georgia Real estate Commission) are actually option contracts ( I despise them). They bind the seller but not the buyer. The contract specifies an amount of ‘due diligence’. The due diligence period is often used to secure financing, perform inspections such as per test, survey and other task. If the buyer decides to not to complete the transaction, they get the earnest money back. They can literally wake up one morning and change their mind and get their earnest money back. Meanwhile the seller has taken the property off the market and has possibly missed other opportunities. There is a work around, add a special stipulation whereby the buyer forfeits the earnest money if they do not close. I have worked with several out of state seller and honestly our contracts can cause some heart burn, particularly in those states whereby the buyer forfeits earnest money for non-performance. Obviously there should be circumstances whereby the buyer gets the earnest money back i.e. soil won’t perc, survey exposures encroachments, survey exposures different number of acres then is being advertised, but honestly just changing your mind is NOT a good reason to get the earnest money back. If you are representing the seller, take good care of them!!
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