Understanding the Earnest Money Agreement

It’s not unusual for a person to see purchase agreements, vacation contracts, or even do it yourself (DIY) guides for the weekend fix-it project and think how things would be easier if there were a template that would guide them towards completing the task. Fortunately, a real estate lawyer has created templates that make life’s decisions a lot easier for individuals like that.

An earnest money agreement is typically an agreement to purchase a property such as a home. Many people have heard of the term before but may not understand how much a real estate earnest money agreement can save them. The full version of the term “earnest money” has almost become lost in translation.

However, a comprehensive earnest money agreement template can change that conversation.

What’s an Earnest Money Agreement?

An earnest money agreement is a simple means of putting a legally binding contract in place for the purchase of a property. They are somewhat binding in the sense that there are agreements to purchase the property once the individual or group makes payment on the property. It can be done for either residential or commercial properties.

Like other contractual obligations, a legally binding earnest money agreement is based on the transfer of valuable consideration. For example, if a person were to transfer a property to another, then they are entitled to the money being asked for the property. However, it does not mean that an exchange of money is required simultaneously.

Many people may think that it’s just a simple agreement and that they can either write one or verbally affirm that they’ve entered into an agreement. However, a legally binding agreement is essential. This is because the buyer may need to present it to the bank to secure a loan or they may need to file an action in court to enforce the contract.

Why Most Buyers Need the Form

If they’re buying a house, then the buyer needs to have something in writing in case any disputes arise during the purchase process. An earnest money agreement template can help to simplify the process so that they can complete the form. Once they’ve submitted it to the seller, then they can expect a refund if the seller breaks contact.

Sometimes, buyers may withdraw from the purchase process. Other times, they may be rejected. Then, the agreement may cancel out. In most cases, the buyer gets a refund of the money that they paid.

How to Avoid the Mistakes

There are several serious mistakes that buyers can make when it comes to signing an earnest money agreement. One mistake that occurs is that the buyer forgets to mention certain contingencies in the contract. For example, they forget to mention that the earnest money agreement should become void in the event that the bank denies a mortgage. Another mistake that buyers make is not specifying a timeline for closing escrow. Also, buyers sometimes forget to mention how the funds for the deposit vary.

Finally, in some cases, buyers may hand over additional money. This additional money can be known as “more earnest money.” If this additional money is placed in an interest checking account, then other conditions apply.

The facts are difficult to deny: legal templates can help you to seal the deal.