Diving into the property market is an exciting venture, and as you navigate it, you’ll come across several financial terms. Some of the terms are earnest money and deposit. Even though both of them sound similar, they serve unique purposes in a real estate transaction.
Let’s simply break it down and familiarise ourselves with the key differences:
Purpose
Earnest money is the initial payment given by the buyer to the seller, showing serious intent. It’s also known as a good-faith deposit, making the offer attractive.
On the other hand, a deposit is a part of the actual purchase price. More than a promise, when one pays a deposit, the selling process begins. It signifies a binding agreement between both parties to move forward with the transaction.
Timing
Earnest money is an early step, occurring before the actual property transaction gets underway. It’s a way of getting the seller’s attention, especially to stand out among the competition. Deposits are paid only when the contract is signed to seal the deal and confirm the buyer’s purchase.
Refundability
There are certain conditions under which earnest money can be refundable. Let’s say if a buyer can’t get financing or inspection shows major issues, the earnest money is refundable.
Conversely, a deposit is a more substantial payment made to confirm the deal, which is non-refundable and signifies a stronger legal commitment to complete the purchase.
Legal Implications
Earnest money signals serious intent but doesn’t legally force the buyer to complete the sale. A deposit, however, is tied to the contract. If the buyer backs out without a valid reason, they could lose the deposit or face legal consequences.
Understanding the difference between these two can help you move through your property journey with more confidence, and at Sapphire Estate, we’re here to guide you every step of the way.
