"Earnest Money Agreement"

What Is an Earnest Money Agreement?

An Earnest Money Agreement is a formal document signed between two parties - a seller and a buyer - before they enter into a Sale and Purchase Agreement to transfer ownership of the real estate and to outline the terms of the deposit offered by the buyer. During the negotiations, the purchaser puts their money in the deposit account until the parties are in full agreement regarding the conditions of the property transfer.

You can download an Earnest Money Agreement template via the link below.

The amount of the earnest money deposit may vary between one and ten percent of the total sales price - it demonstrates the good faith of the purchaser who is interested in the real estate and gives them a better chance to buy the property since the deposit will remove the house or apartment from the market while the parties are negotiating the transaction. Note that the existence of a deposit does not mean the buyer will buy the real estate in question - they may say no to this deal with or without a proper reason.

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How to Write an Earnest Money Agreement?

Follow these steps to draft a simple Earnest Money Agreement:

  1. Write down the names and addresses of the seller and purchaser. You may add their contact information here or at the end of the document.
  2. Identify the third party to the agreement - usually, it is a real property brokerage, escrow agent or company, or a title company.
  3. State the purpose of the agreement - the monetary funds provided by the buyer will be held in a deposit account. Once the parties notify the third party the deal is closed, this amount will go towards the buyer's down payment on the property.
  4. Determine the deadline for the sale - usually, the parties need no more than six months to finalize the deal.
  5. List the conditions that must be met to eventually sign the sale and purchase contract. You may record the parties' obligation to conduct a home inspection and appraisal. Decide which party pays for these expenses. If the buyer is not satisfied with the results of the inspection, they may choose to pull out of the deal and find a better option on the real estate market.
  6. Add the termination clause - it is possible the purchaser will not follow through with the transaction and chooses to take their money back instead, which often happens if the current owner hid the defects of the real estate and they are uncovered during the house inspection. In this case, the seller must return the money. Note that the seller cannot terminate the agreement without a reason - the purchaser then earns the right to sue them for specific performance.
  7. Sign and date the Earnest Money Agreement Form. Since it is a private contract that leads to a different, more complicated agreement, you are not obliged to bring the documentation to a notary public for their acknowledgment and notary seal.

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Earnest Money Agreement
This Earnest Money Agreement (hereinafter referred to as the “Agreement”) is entered
into as of ___________________, by and between __________________________, with
a mailing address of _______________________________________________________
__________ (hereinafter referred to as the “Seller”) and __________________________,
with a mailing address of ___________________________________________________
______________ (hereinafter referred to as the “Buyer”), collectively referred to as the
“Parties”, both of whom agree to be bound by this Agreement.
The total sales price is $___________________, payable as follows:
$___________________ cash, of which the Buyer agrees to forthwith deposit with
___________________, the sum of $___________________, as Earnest Money, to
bind this sale, and the balance to be paid in cash at closing.
Any note to be executed by Buyer hereunder shall be secured by Vendor's Lien and Deed
of Trust with Power of Sale upon said property and with the usual covenants and
provisions as to taxes, hazard insurance, acceleration of maturity on account of default
and for attorney's fees and such Note and Deed of Trust with the Trustee named by the
Seller, are to be upon current forms of the State Bar of ___________________. Unless
hereinafter otherwise provided, the furnishing of such Note and Deed of Trust and the
recording thereof, shall be at the expense of the Buyer.
The Seller is to furnish the Buyer an Owner's Policy of Title Insurance issued by a Title
Company licensed to do business in ___________________ and tax certificates showing
no delinquent taxes, (current taxes, insurance and rents, if any, to be prorated to date of
closing), a General Warranty Deed to be recorded at the Buyer's expense, conveying good
and marketable title subject only to the following:
1. Present restrictions, if any, existing against said property.
2. Existing building and zoning ordinances, if any.
3. Rights of Parties in possession.
4. Any and all reservations, of oil, gas and minerals, exceptions, covenants,
conditions and restrictions contained in the chain of title of said premises;
including sales or reservations of oil, gas and minerals.
5. Any visible and apparent, or recorded easements and roadways for roads or utility
lines over and across said premises.
If Owner's Policy of Title Insurance is to be furnished hereunder the same is to be
delivered as and when the sale is closed, which shall be within _________ days from date
hereof unless attorneys for said Title Company discover objections to title, in which case
sale is to be closed when objections are removed, provided the objections are removed
within a reasonable time, which in no event shall extend beyond _________ days from
date hereof. It is agreed that by the delivery of Owner's Policy of Title Insurance (form
prescribed by State Board of Insurance of the State of ___________________) under the
terms of this Agreement, dated as of the date of closing and issued to the Buyer in the
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Earnest Money Agreement
This Earnest Money Agreement (hereinafter referred to as the “Agreement”) is entered
into as of ___________________, by and between __________________________, with
a mailing address of _______________________________________________________
__________ (hereinafter referred to as the “Seller”) and __________________________,
with a mailing address of ___________________________________________________
______________ (hereinafter referred to as the “Buyer”), collectively referred to as the
“Parties”, both of whom agree to be bound by this Agreement.
The total sales price is $___________________, payable as follows:
$___________________ cash, of which the Buyer agrees to forthwith deposit with
___________________, the sum of $___________________, as Earnest Money, to
bind this sale, and the balance to be paid in cash at closing.
Any note to be executed by Buyer hereunder shall be secured by Vendor's Lien and Deed
of Trust with Power of Sale upon said property and with the usual covenants and
provisions as to taxes, hazard insurance, acceleration of maturity on account of default
and for attorney's fees and such Note and Deed of Trust with the Trustee named by the
Seller, are to be upon current forms of the State Bar of ___________________. Unless
hereinafter otherwise provided, the furnishing of such Note and Deed of Trust and the
recording thereof, shall be at the expense of the Buyer.
The Seller is to furnish the Buyer an Owner's Policy of Title Insurance issued by a Title
Company licensed to do business in ___________________ and tax certificates showing
no delinquent taxes, (current taxes, insurance and rents, if any, to be prorated to date of
closing), a General Warranty Deed to be recorded at the Buyer's expense, conveying good
and marketable title subject only to the following:
1. Present restrictions, if any, existing against said property.
2. Existing building and zoning ordinances, if any.
3. Rights of Parties in possession.
4. Any and all reservations, of oil, gas and minerals, exceptions, covenants,
conditions and restrictions contained in the chain of title of said premises;
including sales or reservations of oil, gas and minerals.
5. Any visible and apparent, or recorded easements and roadways for roads or utility
lines over and across said premises.
If Owner's Policy of Title Insurance is to be furnished hereunder the same is to be
delivered as and when the sale is closed, which shall be within _________ days from date
hereof unless attorneys for said Title Company discover objections to title, in which case
sale is to be closed when objections are removed, provided the objections are removed
within a reasonable time, which in no event shall extend beyond _________ days from
date hereof. It is agreed that by the delivery of Owner's Policy of Title Insurance (form
prescribed by State Board of Insurance of the State of ___________________) under the
terms of this Agreement, dated as of the date of closing and issued to the Buyer in the
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amount of the total sales price, guaranteeing the Buyer's title to be good and indefeasible
subject only to the foregoing exceptions and the following:
1. Restrictive covenants affecting the land described or referred to above.
2. Any discrepancies, conflicts, or shortages in area or boundary lines, or any
encroachments, or any overlapping of improvements.
3. All taxes for the current and subsequent years.
4. All duties of the Seller as to the sufficiency of title required hereunder shall be
deemed to be fully performed by the Seller, however, the Seller shall not thereby be
released from the warranties of his Deed.
If the property that is the subject of this Agreement is located outside the limits of a
municipality, the property may now or later be included in the extraterritorial jurisdiction
of a municipality and may now or later be subject to annexation by the municipality. Each
municipality maintains a map that depicts its boundaries and extraterritorial jurisdiction.
To determine if the property is located within a municipality’s extraterritorial jurisdiction
or is likely to be located within a municipality’s extraterritorial jurisdiction, contact all
municipalities located in the general proximity of the property for further information.
IF FOR THE CURRENT AD VALOREM TAX YEAR THE TAXABLE VALUE OF
THE LAND THAT IS THE SUBJECT OF THIS AGREEMENT IS DETERMINED BY
A SPECIAL APPRAISAL METHOD THAT ALLOWS FOR APPRAISAL OF THE
LAND AT LESS THAN ITS MARKET VALUE, THE PERSON TO WHOM THE
LAND IS TRANSFERRED MY NOT BE ALLOWED TO QUALIFY THE LAND FOR
THAT SPECIAL APPRAISAL IN A SUBSEQUENT TAX YEAR AND THE LAND
MAY THEN BE APPRAISED AT ITS FULL MARKET VALUE. IN ADDITION, THE
TRANSFER OF THE LAND OR A SUBSEQUENT CHANGE IN THE USE OF THE
LAND MAY RESULT IN THE IMPOSITION OF AN ADDITIONAL TAX PLUS
INTEREST AS A PENALTY FOR THE TRANSFER OR THE CHANGE IN THE USE
OF THE LAND. THE TAXABLE VALUE OF THE LAND AND THE APPLICABLE
METHOD OF APPRAISAL FOR THE CURRENT TAX YEAR IS PUBLIC
INFORMATION AND MAY BE OBTAINED FROM THE TAX APPRAISAL
DISTRICT ESTABLISHED FOR THE COUNTY IN WHICH THE LAND IS
LOCATED.
It is understood and agreed that neither the Seller nor the Seller’s successors or assigns
will be liable to the Buyer, the Buyer’s heirs or assigns, for any “roll back” taxes, penalty
or interest imposed on said land under the provisions of Section ___________________,
of the Tax Code of the State of ___________________, as the result of any change
hereafter in the use of said land; that the responsibility to satisfy any lien on the property
thereby created will be that of the the Buyer, the Buyer’s heirs and assigns.
Time is of the essence of this Agreement.
Upon failure of the Buyer to comply herewith, the Seller may at his option enforce
specific performance, or retain the earnest money as liquidated damages. If title is found
objectionable and is not cleared within the time herein provided, or upon failure of the
Seller to comply herewith for any other reason, the Buyer may demand back the earnest
money, thereby releasing the Seller from this Agreement, or the Buyer may either enforce
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specific performance hereof or seek such other relief as may be provided by law. In
accordance with the terms of the Real Estate License Act of _____________________,
you, as the Buyer, are advised that you should have the abstract covering the herein
described real estate examined by an attorney of your selection, or be furnished with or
obtain a policy of title insurance.
If the Buyer, under the terms hereof, is to secure a loan from a third party, all expenses
and conditions of securing and closing such loan shall be the Buyer's obligation. If the
Buyer, under the terms hereof, is to assume an existing loan, any transfer fee charged for
the transfer thereof shall be paid by the Buyer and the Buyer shall execute, at the option
and expense of the Seller, a Deed of Trust to Secure Assumption (upon current State Bar
of _____________________ form) with Trustee named by the Seller.
Escrow Agent. It is understood and agreed that Escrow Agent is not a party to this
agreement, that Escrow Agent can rely upon any communications received by either party
to this Agreement and that Escrow Agent shall have no liability hereunder for any action
taken except for Escrow Agent’s gross negligence or willful misconduct.
Special Provisions: ________________________________________________________
________________________________________________________________________
________________________________________________________________________
The Parties agree to the terms and conditions set forth above as demonstrated by their
signatures as follows:
_________________________________
_________________________________
Seller’s Printed Name
Buyer’s Printed Name
_________________________________
_________________________________
Seller’s Signature
Buyer’s Signature
_________________________________
_________________________________
Date
Date
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