Sometimes we find that purchasers, when preparing to buy, focus heavily on putting aside money for their down payment that they forget about (or don't know about) other up-front monies that they will need. The first one in the process is "earnest money."
When you write an offer with your agent (me) you'll also need to write a check called an earnest money deposit. As its name implies, the purpose of this check is to demonstrate to the seller that your offer is "in earnest." You see, this deposit does a few things. First, to show the seller that you are serious. So serious, in fact, that you are willing to put that money on the line and forfeit it to the seller should you breach your contract. Second, it also serves as a deposit on your side of the equation. What I mean is that when we go to closing, this money is credited back to you.
One question people often ask is "if this doesn't go through, will I lose this money?" The answer most of the time is no. All contracts are contingent on financing or proof of funds for cash deals. If something happens (you lose your job, for instance) that causes you to be denied financing, you will not lose this money. However, if you are approved and just change your mind, this is default (breach) and you forfeit this money. Fortunately, in my career, this has only happened enough times for me to count on one hand.
Another common question is "how much earnest money do I have to put up?" There is no solid answer here. There are no rules. You want to offer enough of a deposit to show your seriousness about the property and something that is in proportion to the value of the property. For example, if you are interested in buying a $300,000 house, the seller is highly unlikely to accept a $500 earnest money deposit. Why? If you default, he only stands to recoup $500 after taking his house out of the active listing status while under contract with you. For that priced property, he will want a more sizable deposit to make it worth his while in the event of a breach. Make sense?
The stewardship of your earnest money is strictly regulated by state government. Your money must be deposited into a special trust account to be held there until it can be rightfully disbursed. Once your offer is accepted by the other party, agents are required by law to deposit your earnest money into that trust (escrow) account within 48 hours. It's as safe as being in Gringotts (for all you Harry Potter fans!)
If you have any real estate questions, either of us would be happy to talk with you. Information is power.
When you write an offer with your agent (me) you'll also need to write a check called an earnest money deposit. As its name implies, the purpose of this check is to demonstrate to the seller that your offer is "in earnest." You see, this deposit does a few things. First, to show the seller that you are serious. So serious, in fact, that you are willing to put that money on the line and forfeit it to the seller should you breach your contract. Second, it also serves as a deposit on your side of the equation. What I mean is that when we go to closing, this money is credited back to you.
One question people often ask is "if this doesn't go through, will I lose this money?" The answer most of the time is no. All contracts are contingent on financing or proof of funds for cash deals. If something happens (you lose your job, for instance) that causes you to be denied financing, you will not lose this money. However, if you are approved and just change your mind, this is default (breach) and you forfeit this money. Fortunately, in my career, this has only happened enough times for me to count on one hand.
Another common question is "how much earnest money do I have to put up?" There is no solid answer here. There are no rules. You want to offer enough of a deposit to show your seriousness about the property and something that is in proportion to the value of the property. For example, if you are interested in buying a $300,000 house, the seller is highly unlikely to accept a $500 earnest money deposit. Why? If you default, he only stands to recoup $500 after taking his house out of the active listing status while under contract with you. For that priced property, he will want a more sizable deposit to make it worth his while in the event of a breach. Make sense?
The stewardship of your earnest money is strictly regulated by state government. Your money must be deposited into a special trust account to be held there until it can be rightfully disbursed. Once your offer is accepted by the other party, agents are required by law to deposit your earnest money into that trust (escrow) account within 48 hours. It's as safe as being in Gringotts (for all you Harry Potter fans!)
If you have any real estate questions, either of us would be happy to talk with you. Information is power.
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