Good Faith Money
Definition of 'Good Faith Money'
Good faith money serves several purposes. First, it shows the seller that the buyer is serious about buying the property and is not just "window shopping." Second, it helps to cover the seller's costs if the buyer backs out of the sale. Third, it can be used to pay for any repairs or other costs that need to be completed before the sale closes.
If the buyer completes the sale, the good faith money is applied to the down payment. If the buyer backs out of the sale, the seller can keep the good faith money as compensation.
It is important to note that good faith money is not the same as earnest money. Earnest money is a larger deposit that is typically equal to 2%-3% of the purchase price. Earnest money is also held in escrow by the seller's real estate agent, but it is not forfeited if the buyer backs out of the sale. Instead, the seller can keep the earnest money as a penalty for the buyer's breach of contract.
Good faith money is a valuable tool that can help to protect both buyers and sellers in real estate transactions. By understanding what good faith money is and how it works, you can make informed decisions about your real estate purchases and sales.
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