Hugh and Ryan vs. ChatGPT - July 2023
Question: What is earnest money!?
"Earnest money, in a big picture, is earnest, as in good faith - here is some money, I am committed to doing this thing with you. A third party gets the earnest money and holds it in good faith. If you carry through with the purchase, then it goes to the purchase price. If you don't carry through with the purchase, then you could lose the earnest money. What comes into play with the earnest money is you have a due diligence period where you are researching the property you are buying, and should you change your mind for any reason, you can get it back, so there is actually a get-out-of-jail-free card where you can get your money back. But, once you're past the due diligence period, it is non-refundable to the buyer. It is money that you put forward, and you could possibly lose it." -Hugh
"Earnest money, not to be confused with money down, is the money put up by the buyer in a purchase and sale agreement to put some skin in the game. Often, it is about one percent of the purchase price. If you terminate the contract during the due diligence period, you can get the earnest money back. However, suppose you terminate the contract, as the buyer, at the thirteenth hour, right before it closes, the seller will likely get the buyer's earnest money. It is your skin in the game to say we have this property under contract and want to do this deal." -Ryan
In commercial real estate, earnest money refers to a deposit made by a potential buyer or tenant to demonstrate their serious intent to proceed with a real estate transaction. It is a way for the buyer or tenant to show the seller or landlord that they are committed to the deal.
When a buyer or tenant decides to make an offer on a commercial property, they typically provide earnest money as part of the offer.
The amount of earnest money can vary depending on factors such as the value of the property, local market practices, and negotiations between the parties involved. -ChatGPT