Understanding Earnest Money in New Jersey Real Estate Transactions
In New Jersey real estate deals, earnest money—also referred to as a good faith deposit—is a sum of money a buyer includes with their offer to demonstrate serious intent to purchase a property. It is typically held in escrow by the listing broker, buyer’s agent, or a title company.
Purpose of Earnest Money
Earnest money serves to reassure the seller that the buyer is committed to closing the deal. While there’s no state-mandated minimum in New Jersey, the amount is usually 1% to 2% of the purchase price, but it can vary based on market conditions and the specifics of the negotiation.
What Happens to the Deposit
- If the offer is accepted and the transaction proceeds to closing, the earnest money is applied toward the buyer’s closing costs or down payment.
- If the deal falls through due to a contingency in the contract (e.g., home inspection, financing, or appraisal), the earnest money is typically refunded to the buyer.
- If the buyer defaults without a valid contractual reason, the seller may be entitled to keep the earnest money as liquidated damages.
In Case of a Rejected Offer
If no contract is ever signed—such as when a seller rejects the offer—then the earnest money is usually returned to the buyer, since no binding agreement has been formed. This is consistent with New Jersey contract law, which requires mutual consent for enforceability.
Legal Handling
All escrowed funds must be held in compliance with New Jersey Real Estate Commission rules. Brokers holding earnest money are required to deposit the funds promptly into a trust account and may not commingle them with business or personal funds.
