An earnest payment is
a specific form of security deposit made in some major transactions such as
real estate dealings or / required by some official Procurement processes to
demonstrate that the applicant is serious & willing to demonstrate an
earnest of good faith about wanting to complete the transaction.
In ancient times, the
earnest payment was called variously an earnest penny, Aries penny, or /
God's silver (in Latin Argentum Dei ). It was either money or / a valuable
coin or / token given to bind a bargain, notably for the purchase or / hiring
of a servant.
A related term is
luck money, which relates to a token given back to the buyer by the seller on
the completion of a deal, for luck.
In Germany, knives
are still sometimes packaged with a specially minted "gluecks
pfennig" coin or / Euro cent - presumably to indicate the buyer &
seller are friends .
Potential Buyer of
Property..!
A potential buyer of
property of high value such as residential real estate generally signs a
contract and pays a sum acceptable to the seller by way of earnest money. The
amount varies enormously, depending upon local custom and the state of the
local market at the time of contract negotiations.
In very competitive
markets 'the earnest' may represent a substantial portion of the completion
cost.
In the USA, between
nearly 2000 and 2005 real estate purchases earnest money deposits reached
nearly 5 per cent of the sales price.In other situations, a significant token
payment (equivalent to around one week or one month's salary) may be
acceptable. (In the USA during 2008 typically $500 or / $1000 was acceptable)
If the seller accepts
the offer, the earnest money is held in trust or / escrow.
These funds may be
held directly by the real estate broker (as in the State of New York) or / by a settlement or title company (as in
states like California, Florida, and Texas).
When the transaction
is settled then the deposit is applied to the buyer's portion of the remaining
costs. If the offer is rejected, the earnest money is usually returned, since
no binding contract has been entered into. Laws vary as to what happens with
the deposit should the buyer fail to perform on the contract.
Src: Wikipedia
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