Earnest Money

Earnest money, also known as a good faith deposit, is the money paid by buyers after mutual acceptance to prove that they're serious about their offer.

In Massachusetts, the buyer must deposit a $1,000 check with the seller's brokerage or attorney once the seller has agreed to and signed the buyer's offer. You should have this money ready to deposit before you make your offer. In fact, you're usually required to include a photocopy of your check when you send your initial offer through your agent.

In the Boston area, the initial earnest money deposit is usually $1,000. Later, after you and the seller have signed a purchase and sale agreement, you'll make an additional deposit with the seller's broker or attorney. This second deposit will be equal to 5% of the home's purchase price.

The earnest money deposit is held in reserve by the seller's broker or attorney. Technically, nobody "gets" the earnest money until the sale is completed or canceled:

• If the sale is successful: the earnest money is applied to your down payment on the home purchase.
• If the sale falls through because of a failed contingency: you get the earnest money back without penalty.
• If the buyer backs out of the sale for reasons not covered by a contingency: then the seller keeps the buyer's earnest money.

For most deals, cashier's checks or wire transfers are the preferred methods of depositing earnest money. Some deals may allow personal checks or even credit cards to be used for earnest money deposits. However, we recommend you avoid using your credit card because of the negative impact it may have on your credit score; it can hurt your chances of getting a mortgage loan.