Negotiating an offer to purchase real estate involves more than coming to agreement on price. Other terms that must be agreed upon include;

• Date of closing
• Date of possession
• Payment of taxes
• Closing cost contributions
• Inspection contingencies
• Down payment amount
• Earnest money amount

Of these common terms of an offer, earnest money is the one that always requires the most explanation to my clients. The Wikipedia offers the following definition;

“An earnest payment (sometimes called earnest money or simply Earnest, or alternatively a Good-faith deposit) is a deposit towards the purchase of real estate made by a buyer to demonstrate that he/she is serious (earnest) about wanting to complete the purchase. ”

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In most of the real estate tranactions that take place in Minnesota’s Twin Cities area earnest money is collected from the buyer by the buyer’s agent at the time that the offer is written. The earnest money is typically in the form of a check, but it can be cash or even personal property. Properties that are owned by banks or other corporate entities may require that the earnest money be in the form of a certified check, be prepared for this if you are looking at foreclosed homes. The earnest money does not go to the seller at the time that the offer is presented, the buyer’s Realtor will hold the earnest money until the buyers and sellers have agreed to the terms of the offer and signed it. At that time the buyer’s agent has 3 days to deliver the earnest money to the the seller’s broker who must deposit the money into an escrow account to be held until closing. At the time of closing any earnest money held in escrow is creditied to the buyer and will apply towards the buyers down payment, closing costs, etc.