Earnest Money What You Need To Know

Earnest Money - What You Need To Know
You include earnest money with an​ offer on​ a​ house to​ show the​ seller that the​ you are serious about purchasing the​ house .​
It becomes part of​ the​ down payment if​ the​ offer is​ accepted,​ is​ returned if​ the​ offer is​ rejected,​ or​ is​ forfeited if​ you pull out of​ the​ deal for reasons other than those stipulated in​ the​ offer .​
a​ financing contingency is​ an​ example of​ the​ latter - if​ your offer was contingent on​ getting a​ loan,​ and you can't,​ you can cancel the​ contract and get your earnest money deposit back.
How Much Earnest Money?
The size of​ the​ earnest money deposit is​ up to​ you .​
Real estate agents will sometimes outright lie,​ and tell you it​ is​ this or​ that amount,​ or​ this or​ that percentage of​ the​ offering price .​
In reality,​ you can write the​ offer with a​ one dollar deposit if​ you wish,​ and agent still has to​ present the​ offer .​
Naturally,​ an​ offer with one dollar of​ earnest money may not be taken seriously,​ and the​ agent may even persuade the​ seller to​ reject your offer .​
It is​ a​ good idea to​ ask what the​ local norm is​ .​
We just bought a​ house in​ Colorado,​ and the​ agent told us that a​ $1,​000 deposit was normal .​
Had he said $5,​000 was normal,​ however,​ I​ still would have given a​ deposit of​ just $1,​000 .​
That is​ enough to​ be serious in​ my mind.
You can also do a​ two-part deposit .​
You can make an​ offer with just $100 in​ earnest money,​ for example,​ but specify in​ the​ offer that this will be increased to​ $2,​000 once the​ offer is​ accepted,​ or​ once when an​ inspection,​ appraisal or​ other contingency is​ met .​
This keeps your money from being tied up until you know that the​ seller is​ serious about selling to​ you .​
This will usually still be seen as​ a​ serious offer if​ the​ deposit is​ to​ be seriously increased at​ some point.
Who Gets the​ Earnest Money Deposit?
Never give your earnest money check to​ the​ seller .​
The last thing you want is​ a​ seller trying to​ keep your money after you pull out of​ a​ deal because of​ financing problems,​ termite infestations or​ other valid contingencies in​ your offer .​
If the​ real estate office handling the​ sale has an​ escrow account,​ it​ should be safe to​ make the​ check out to​ the​ broker .​
Otherwise,​ use a​ title company or​ other escrow account,​ but in​ any case,​ always give your deposit to​ a​ third party to​ hold.
Ask how they handle it​ too .​
I​ once had an​ offer rejected,​ and then had to​ wait a​ week to​ get my money back .​
They told me that they had to​ wait for my check to​ clear before they could issue a​ check back to​ me .​
I​ prefer it​ when it​ is​ handled like it​ was on​ our recent home purchase .​
They just hold the​ check until the​ offer is​ accepted,​ and return or​ destroy it​ if​ the​ offer is​ rejected .​

How To Protect Yourself
Things can happen,​ right? If you pull out of​ the​ deal for some unforeseen reason - one not included in​ the​ contract - you'll lose your deposit .​
However,​ the​ seller could also sue you for additional damages or​ even force you to​ buy the​ home .​
To protect yourself,​ have a​ clause in​ the​ offer that specifies the​ earnest money as​ liquidated damages if​ you are in​ default .​
The real estate agent can help with the​ language,​ but this basically means that if​ you need to​ default on​ the​ contract,​ the​ seller can't ask for more than what you have already included as​ earnest money.

You Might Also Like:

Powered by Blogger.