Earnest Money was created to bind a contract. This was the sole purpose of the money.
The parties involved in the sale of real estate have to exchange assets to bind a contract. The seller is exchanging the right to purchase the property. The buyers need to give something to fully bind the contract to purchase real estate. Money is often used to bind the contract.
This "binding" is done so that neither party can back out and say I never agreed to this. The seller cannot say I was never selling a property - it's in the contract. The buyer cannot say I was never purchasing because they gave the money.
It is true contracts happen without earnest money but to bind a contract earnest is needed.
The legal amount of earnest is $1. I have been told by a lawyer that $100 will bind any contract in the United States. I have heard from many Realtors that 1%, $1,000 or other amounts are the legal requirements. All answers seem to very and no one has yet to show me the proof in the law (because I have read the law).
Earnest does not have to be money. Earnest money can be an asset: chickens, eggs, gold, promissory notes, cars or anything of value above $1.
As time has gone on the earnest money has been made to show ones interest in a property. The more money you give the more interested you are in purchasing. This is not always the case if the seller needs to sell.
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