Earnest Money - Definition, Understanding, and How it Works?

Earnest money refers to the deposit paid by a buyer to a seller, reflecting the good faith of a buyer in purchasing a home. Products IT IncomeTaxFiling FileIncometaxreturnsforfreein7minutes EX ExpertAssistedServices Getexperthelpfortaxfilingorstartingyourbusiness 80c New TaxSaving CuratedMutualFunds&plansfortaxsavings MF New MutualfundInvestments InvestinbestGrowthmutualfunds GST GSTSoftware CompleteGSTfiling&billingsolution TC TaxCloud(DirectTaxSoftware) I-T,e-TDS&AuditSoftwareforCAs&TaxProfessionals EINV e-InvoicingSoftware Completesolutionforallyoure-invoicingneeds Aboutus HelpCenter IncomeTax GST e-Invoicing MutualFunds Business LogIn Wheredoyouwanttologin? IncomeTaxE-Filing GSTSoftware MutualFunds SignUp SignUp SignUp LogIn IncomeTaxE-Filing GSTSoftware MutualFunds Products IT IncomeTaxFiling EX ExpertAssistedServices 80c TaxSaving MF MutualFundInvestments GST GSTSoftware TC TaxCloud(DirectTaxSoftware) NeedHelp? Aboutus FileITR,invest&saveupto₹46,800intaxesonthego 0%commission•Earn upto1.5%extrareturns Getdownloadlink Downloadlinksent Forandroid&IOSusers FileITR,invest&saveupto₹46,800intaxesonthego 0%commission•Earn upto1.5%extrareturns Getdownloadlink Downloadlinksent Forandroid&IOSusers Glossary Trending home Savings/WealthManagement RealEstate EarnestMoney Category Savings/WealthManagement Subcategories EarnestMoney ReviewedbyBhavana|UpdatedonDec13,2021 Share Catalogue WhatistheMeaningofEarnestMoney? Earnestmoneyreferstothedepositpaidbyabuyertoaseller,reflectingthegoodfaithofabuyerinpurchasingahome.Themoneybuysmoretimetothebuyerbeforeclosingthedealtoarrangeforfundingandperformthehuntfornames,propertyvaluation,andinspections.Earnestmoneycanbecalled,inmanyrespects,adepositonaproperty,anescrowdeposit,ormoneyofgoodwill. WhattodotoProtectYourEarnestMoneyDeposit? Prospectivebuyerscandovariousthingstosecuretheirearnestmoneydeposits: Makesurethecontractprovidescontingenciesforfundingandinspections.Withoutthese,thedepositwillbeforfeitedif,duringtheinspection,thebuyercan'tgetfundingorasignificantdefectisfound. Read,comprehend,andcomplywiththetermsandconditionsofthecontract.Forinstance,ifthecontractspecifiesthathomeinspectionneedstobedonebyacertaindate,thebuyermustmeetthedeadline,ortheyrisklosingthedepositandtheproperty. Ensurethatthedepositishandledproperly.Thedepositneedstobepayabletoareputedthirdparty,suchasawell-knownrealestatebrokerage,titlecompany,escrow,oralawfirm(neversendthedepositdirectlytotheseller).Buyerscankeepthefundsinanescrowaccountandalsogetareceipt. WhatYouShouldKnow Formostsituations,whenthesalescontractorpurchasingagreementissigned,theearnestmoneyisissued.Butitmayalsobeaddedtothedeal.Afterdeposit,thefundsareusuallyhelduntilclosinginanescrowaccount,atwhichstagethedepositisaddedtothedownpaymentandclosingcostsofthebuyer. Ifabuyeragreestopurchaseahomefromaseller,bothpartiessignadeal.Thecontractmaynotobligethebuyertopurchasetheproperty,asthepropertyvaluationandinspectionreportscanshowtheproblemsrelatedtothehouselater. Nonetheless,thecontractdoesmeanthatthesellertakesthehouseoffthemarketwhileitisbeingcheckedandmeasured.Thebuyermakesanearnestdepositofmoney(EMD)toprovethebuyer'soffertobuythepropertyismadeingoodfaith. Further,theearnestmoneyisnotalwaysrefundable.Forexample,ifabuyerfailstofollowthedeadlinesetoutinthecontractorifthebuyerintendstonottogothroughthehomepurchaseforcontingenciesnotmentionedinthecontract,thesellergetstoretaintheearnestmoney. RelatedTerms RecentTerms FileGSTReturnswithClearTax Easy-to-use&100%accurateSoftware Auto-computeGSTR-9 Reconcilefiledreturnswithsalesandpurchase SingleclickuploaddatathroughTallyconnector Start30daysfreetrial Trustedby 4million CAAssisted Services Yourdatais safe&private TaxSavingInvestmentMadeSimple OnlyBestFundsPickedbyExperts CompletelyFREE&SimpletoInvest Highestreturnsamong80C Savetaxesupto₹46,800 SaveTax GrowWealth Trustedby 4million CAAssisted Services Yourdatais safe&private #