Document background
The Earnest Money Contract is a fundamental document in U.S. real estate transactions, used when a buyer wishes to demonstrate serious intent to purchase a property by providing a good faith deposit. This contract type is essential in both residential and commercial real estate transactions, typically representing 1-3% of the purchase price as earnest money. The document is primarily governed by state laws, with additional federal regulations applying to specific aspects of the transaction. It should be used at the initial stage of a property purchase, after price negotiation but before closing, and includes critical elements such as property description, purchase price, earnest money amount, handling of deposits, contingencies, and closing requirements. The contract protects both buyer and seller by clearly defining the terms under which the earnest money may be retained or returned, and establishing the framework for the entire transaction through closing.
