Dawn Isenhower Sibcy Cline Realtors

I was doing a buyer counseling session with a young couple. They were looking for their first home, so I reviewed the purchase contract with them as a part of that session. When we got to the section concerning earnest money, they asked "What exactly is earnest money, and do we have to pay it?" This was a question that my husband and I had when we were in the process of purchasing our first home as well, and it seems to come up a lot with first-time homebuyers in general.

Earnest money, while not required by law in the state of Ohio, demonstrates good faith on part of the buyer that he and/or she truly has the intention of purchasing the property. It is the consideration submitted with the contract that strengthens the offer. If a seller receives two similar offers-one with earnest money and one without, that seller is more apt to accept the offer that is accompanied by earnest money if all other circumstances are equal.

Upon acceptance of an offer, the earnest money must be put into non-interest bearing account belonging to the selling broker or the listing broker. This money cannot be touched by anyone without a written release from the buyer and the seller.

For the most part, I advise my buyers to submit what they can in earnest money, but a good rule of thumb is to write the check for 1% of the price that they are offering on properties that are below $200,000. The amount needs to be enough to sweeten the deal, but not so much that it creates a hardship should the deal fall apart. In that event, the release of earnest money must be approved in writing on both sides of the transaction.

On most bank-owned property, the amount of earnest money that is expected is stated in the listing description. In some cases, banks actually require it for an offer to be considered, and it can be difficult, if not impossible to get back if the deal falls through.