What is Earnest Money?
Earnest Money is a sum of money you will pay at the time a contract to purchase as been executed by all parties. It shows the seller your intention and ability to carry out the terms of the contract. Normally such earnest money is applied against the purchase price at closing. Often the contract provides for forfeiture of this sum if you default on the tems of the contract.
How Much Do I Need?
The earnest money amount you pay will vary according to your area and price of home that you are making an offer on. The earnest money deposit could range anywhere from a few hundred dollars to a couple of thousand. I will help you determine the appropriate amount of earnest money you will need for your home purchase.
When Do I Need It?
Before you even start looking for your new home it is very important to plan ahead and have your earnest money available.
If your offer is accepted and I receive it back signed by all parties, we have an Executed Contract. I will have anywhere from one to five days from the day your contract to purchase is executed to collect your earnest money check from you.
While your lender is processing your loan, verification of where the earnest money came from will be important. There are many lender requirements when it comes to Buyer’s earnest money, so, it is very important to talk with your lender about those requirements before even making an offer on a home.
Who Gets the Earnest Money?
Each state has very strict rules on how this deposit is managed until the transaction closes Typically a third-party escrow agent such as the closing attorney or your real estate agent’s Broker, will hold your earnest money deposit in an escrow account. You should never give the deposit directly to the seller even if you are purchasing a For Sale By Owner. If the transaction doesn’t close and the seller cannot return the money, you may have to pursue legal action, costing you more.
If your offer to purchase (executed contract) closes, you will be given credit at closing for your earnest money deposit. It reduces the amount (if any) you will be required to bring to closing.
When submitting your offer to the Seller, your real estate agent should include specific contingencies that allow you to walk away from the home. Two examples are if the house can’t pass a home inspection or you end up not qualifying for the financing you need. But, if you decide to cancel the contract for a reason not covered by a contract contingency, your earnest money is generally forfeited to the seller. A good contract with proper contingencies is essential in protecting your earnest money deposit.
- Earnest Money is a sum of money paid by a buyer at the time a contract to purchase as been executed by all parties to indicate the intention “good faith” and ability of the buyer to carry out their terms of the contract.
- The earnest money amount will vary according to your area and price of the home that you are making an offer on. The amount can be from a couple of hundred to a couple of thousand dollars.
- 1 to 3 days from the date your offer was executed, you will need to give your real estate agent a check for the amount of earnest money all parties agreed upon in the executed contract.
- Immediately upon receiving your earnest money check, your real estate agent has to give it to the third-party escrow agent to be deposited into the third-party’s escrow account.
- If your contract includes any other additional terms or contingencies, we will discuss your options for receiving your earnest money back based on those terms and contingencies. Every offer is different based on the terms and contingencies agreed upon by all parties.
Listed below are ways you can receive the earnest money back based on the three most common contingencies typically included and agreed upon by all parties in a contract. And, of course, what happens to it upon closing:
- ·During your Due Diligence Contingency period, (time to get any and all
inspections of the home), if your home inspection reveals problems that are
unacceptable to you, you can walk away from the home and receive your
earnest money back.
·During your Financing Contingency period, you end up not qualifying for the
financing you need to purchase the home, you can receive your earnest money
·The Appraisal Contingency period protects your earnest money in the event the
appraised value comes in below the sales price all parties agreed on in the
executed contract, and the seller is not willing to lower the sales price to the
·If all of your contingencies are met and we proceed to closing, the full amount of
your earnest money will be applied against the purchase price.
- If your offer to purchase (executed contract) closes, you will be given credit at closing for your earnest money deposit. It reduces the amount (if any) you will be required to bring to closing.
- If your offer to purchase (executed contract) does not close, your earnest money will be dispersed based on the terms of the executed contract.