What is earnest money?

What is earnest money?

Earnest money is the amount that a buyer pays when he says yes to purchase the property. It is not fixed but depends on the type of property, the total price of the property and also, you’re understanding. In almost all cases this amount is refundable too if the buyer for any reason doesn’t continue with the deal.

Earnest money has different terms and conditions and it also depends on the state and how they deal with this.

Earnest money amount on each deal

The Earnest amount as mentioned earlier depends on many factors and is not fixed. In Pakistan real estate market it is typically 1% of the total home payment. For example, if house payment is 10 to 20 lac then earnest money would be ten thousand. More house payment, high earnest amount, and vice versa.

Earnest amount percentage can be more in some cases and sometimes buyers increase it to make the deal done for themselves and make it look more attractive.

Earnest amount payment?

The Earnest amount is the first payment after the buyer and seller agree on the deal. So it is ideal to make the payment at the earliest to close the deal. In most cases buyers cannot ask to hold the property without this as these types of deals cannot be done on word of mouth. Some amount has to be paid to finalize the deal. 


Buyer with limited funds

There are cases when buyer does not have money, what can be done in that case? Buyers can apply for instant loans and some buyers sell their property to buy another. And can get earnest money from their property to give it to their seller. 


There is one more way and that is a promissory note. This is the document presented by the seller to the buyer as a loan. And the buyer will agree to some date for paying the earnest amount. The buyer can also make a promissory note but the seller doesn't need to sign that.


Reimbursement of earnest amount

The Earnest amount is mostly refundable. Buyers can still change their minds and due to certain reasons can back out. When a buyer offers payment to the seller, it contains occurring. Incidents that happen between the buyers or sellers must find satisfactory by a certain date for the contract to continue.

After earnest amount deeds

In after deeds, we see what if the buyer cannot pay the full amount. In this case, the contract will not be canceled but the buyer can talk to the seller about an extension and things can work also. The seller will get a notice from the buyer to sign the extension document. Or if he doesn’t sign then the deal will be canceled and the buyer will get back his earnest money.


Earnest money is the token amount for buying any property. There are simple rules to follow before buying any property and this is one of them. You can pay and make your deal final or if something happens and you want to back out, you can opt-out also and the amount will be refunded to you.