What is an earnest money deposit?

An earnest money deposit is a payment made by a buyer to a seller to demonstrate a commitment to complete a residential real estate transaction. It is usually only a small percentage of the home’s overall sale price, typically between 2-10%. Once the buyer and seller reach a purchase agreement, the buyer typically makes an earnest money deposit to the seller or their agent as a sign of good faith. In Texas, earnest money deposits are typically held in an escrow account until closing. The escrow account is managed by a neutral third-party, such as a title company, attorney, or real estate agent, and is used to ensure that the terms of the agreement are met. The escrow agent will then release the funds to the seller once the transaction is complete. If the buyer backs out of the contract for any reason, the seller has the right to keep the earnest money deposit as compensation. However, if the seller breaches the terms of the agreement, the earnest money deposit is returned to the buyer. This deposit helps to protect both the buyer and seller from any losses related to the transaction, ensuring a smooth and successful residential real estate sale.

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What is an earnest money deposit?

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