What is an earnest money deposit?

An earnest money deposit is a payment made by a prospective buyer of a residential property in California to the seller once a contract of sale is accepted. This money serves as a security deposit to indicate that the buyer is serious about the sale and is a demonstration of good faith. This deposit is typically held by a third party such as a real estate broker, attorney, or escrow company. In the event that the buyer terminates the contract without sufficient cause, the seller is entitled to keep the earnest money deposit as compensation. On the other hand, if the seller breaches the contract, the buyer is typically entitled to the return of the earnest money deposit. It is important for both the buyer and seller to be aware of the contractual obligations when dealing with an earnest money deposit as both parties may face financial hardship in the event of a breach.

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What is an earnest money deposit?

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