Earnest Money and Escrow

Earnest money is money deposited by the Buyer (usually one percent of the sale price, $1,000.00, or whatever regional custom dictates- the amount is negotiable) at the time of the initial signing of the contract. Earnest money may be deposited with the seller, real estate agent, escrow agent (such as title agent) or attorney.

An Escrow Agent is a neutral third party who holds the various monies involved in an escrow account, pays parties, and ensures that the money changes hands at the same time as the deed is recorded and ownership transferred. The Seller should already have an Escrow Agent on standby or one can be referred by an affiliate agent.

If the Buyer backs out of the contract for any reason that is not allowed in the contract, they have "defaulted" and thereby forfeit the earnest money to the Seller as liquidated damages. Seller might also pursue specific performance - (forcing Buyer to go through with the purchase), but this would require a court case and could be potentially costly in time and money.