What is an earnest money agreement?

An earnest money agreement is a legal document that binds two parties during the purchase and sale of a property. Earnest money is paid by the buyer to the seller of a real estate property and is done in good faith. Usually, the earnest money is between 1-10% of the selling price of the property.

What is the function of earnest money?

The function of earnest money is to show that a buyer is serious about buying a property. It’s also called a good faith deposit. When an interested party pays the earnest money to the seller, the seller takes the property off the market and reserves it for the buyer.

What is earnest money documentation?

Earnest money documentation is a legal agreement that is made between a buyer and a seller when dealing in real estate. It is often the first step in a property sale and signals that the buyer is seriously interested in purchasing the property.

How to write an earnest money agreement?

An earnest money agreement should include the following: The personal details of both parties The details of the property The amount of earnest money being paid The cost of the property The penalties incurred if either party doesn’t honor the agreement

What makes earnest money unenforceable?

An earnest money agreement becomes unenforceable when: The buyer cancels the deal without a valid reason. A buyer defaults on the time frame. The buyer may get their money back if the agreement contains contingency clauses like a mortgage or home sale contingencies.

Earnest Money Agreement Template

Prepared by:

[Seller.FirstName][Seller.LastName] [Seller.Company]

Prepared for:

[Buyer.FirstName][Buyer.LastName]

[Buyer.Company]

1. An Overview

A sum of $(Amount of Deposit) has been received from the [Buyer.FirstName][Buyer.LastName][Buyer.Company], in the form of check/cash payable under the name of [Seller.FirstName][Seller.LastName][Seller.Company] as Earnest Money on (Date of Receiving the Deposit), in part payment of the buying price of the property comprising of (Property Area in Sq. Ft.), located at (Address of the Property).

2. Crucial Recitals

[Seller.FirstName][Seller.LastName] is in the process of selling the property as mentioned above, whose total sale price stands at $(Insert Sales Price).

Both parties agree that the Earnest Money indicates good faith, reflecting an acceptable form of the sale price's partial payment.

Considering the mutual covenants and premises, both parties agree to the following terms and conditions mentioned in this agreement.

[Seller.FirstName][Seller.LastName] will retain the amount of Earnest Money received from [Buyer.FirstName][Buyer.LastName], which will be credited to the total sale price payable by the buyer.

3. Assurance of Good Faith

[Buyer.FirstName][Buyer.LastName] has made an effort in good faith to ascertain all relevant information about the property from other sources, including speaking with the current owners before entering binding negotiations for the purchase.

No representations were made by anyone, but [Seller.FirstName][Seller.LastName], and the seller attests that there are no known defects or problems with the property. The buyer agrees not to enter into any agreements inconsistent with this agreement.

4. Guarantee of Financial Responsibility from the Buyer’s End

[Seller.FirstName][Seller.LastName] may require personal guarantees of financial responsibility for the purchase price over (Enter Percentage)% of the purchase price.

Neither the seller nor any third party acting on behalf of the seller or an agent has or has had any liability to pay claims or judgments against the buyer arising from any prior ownership, use, or occupancy of said property unless specifically noted in this agreement.

The buyer, at this moment, releases and discharges said other parties from all such claims and liabilities.

5. Buyer’s Obligations

[Buyer.FirstName][Buyer.LastName] at this moment agrees to pay a sum of $(Total Purchase Price of the Property) for the property as outlined above or a cash equivalent.

The buyer agrees to settle or discharge all previous debts and obligations of any nature within the county in which the said property is located. [Buyer.FirstName][Buyer.LastName] agrees to conduct themselves as a responsible citizen at all times.

The buyer hereby assumes full responsibility for any problem with which they may be charged to avoid this document being used against them in a court of law.

The buyer agrees that they are not protected under this agreement, nor does it in any way relieve the seller of responsibility and liability for any problems with which said buyer may be chargeable.

The buyer is still responsible for all liabilities which may arise from the use of their property. The buyer hereby assumes full accountability for any problems with which they may be chargeable. This document does not limit or waive any claims the seller may have against the buyer.

6. The Incompetence of the Buyer to Complete the Purchase

[Buyer.FirstName][Buyer.LastName] backs out of this agreement or the property deal, they will have to pay for any damages that were caused by them backing out on their deal.

In addition, the buyer has to forfeit the earnest money to the seller. In such case, any amount received by [Seller.FirstName][Seller.LastName] shall not be refunded.

On the other hand, if there is a breach of the agreement from the seller's side, then the amount received from the buyer to date will be refunded within a period of (Enter Amount of Days) days.

7. Conditions Leading to Breach of the Agreement

The following are the conditions that can lead to a breach of an earnest money agreement:

If the buyer fails to close on their purchase within a period of (Enter Amount of Days) days after signing an earnest money agreement
The said property is unable to pass the structural inspection
The buyer is unable to provide a certificate of insurance for the property, which is required by law
The seller does not complete the work or render services as promised
Failure of negotiations between parties
Seller's failure to complete the transaction by not delivering the complete property access on time

8. Modifications in the Agreement

All the understandings, terms, and conditions merged into this agreement comply with the interests of both parties. Accordingly, any other statement or representation other than the ones mentioned in this agreement will be considered invalid.

If any party wishes to amend the terms and conditions stated in the agreement, they must seek written consent from the other party.

9. Signatories

This agreement shall be signed by [Buyer.FirstName][Buyer.LastName] and [Seller.FirstName][Seller.LastName] and shall be effective from the mentioned date.

Signature

MM / DD / YYYY