Serious home buyers understand the importance and the power of an earnest money deposit, also called a good faith deposit.
This one step in the offer stage can make the difference between getting a signed contract or the seller walking away. That’s because an earnest money deposit proves your commitment.
Not sure where to start? Here are five common questions about a good faith deposit.
This one step in the offer stage can make the difference between getting a signed contract or the seller walking away. That’s because an earnest money deposit proves your commitment.
Not sure where to start? Here are five common questions about a good faith deposit.
Earnest Money Deposit vs Down Payment: Is It the Same Thing?
Earnest money deposit is not the same thing as a down payment. However, it can be applied to your down payment. Instead, an earnest money deposit demonstrates to the seller that you’re serious about buying their property.
Can A Seller Keep My Earnest Money?
When a buyer signs a contract to purchase a home, the seller takes the property off the market while the transaction moves through legal channels.
If the transaction fails through no fault of the seller, the seller must start the process all over again.
That’s why if a buyer—for no particular reason—decides to back out of the real estate contract, the seller can keep the earnest money deposit.
Conversely, if the transaction falls through due to a failed contingency such as a poor home inspection, failed appraisal, or financing contingency, the buyer is not legally obligated to complete the transaction. In that case, your earnest money deposit would be returned to you.
If the transaction fails through no fault of the seller, the seller must start the process all over again.
That’s why if a buyer—for no particular reason—decides to back out of the real estate contract, the seller can keep the earnest money deposit.
Conversely, if the transaction falls through due to a failed contingency such as a poor home inspection, failed appraisal, or financing contingency, the buyer is not legally obligated to complete the transaction. In that case, your earnest money deposit would be returned to you.
How Much Earnest Money Do You Put Down?
Typically, it’s between 1%-3%. The amount often depends on the market, though. A listing that has languished on the market for months may not need as much of an earnest money deposit.
If, however, multiple buyers are vying for the same property, it’s smart to put down as much of a good faith deposit as you can.
If, however, multiple buyers are vying for the same property, it’s smart to put down as much of a good faith deposit as you can.
How Can You Protect Your Earnest Money Deposit?
No market is immune to fraud and neither is the real estate market. That’s why you should never give your deposit money directly to the real estate firm or seller.
Instead, choose a third party such as a title or escrow company like Lilly Title & Settlement.
As the buyer, you will make the check out to the third party and it will be deposited by certified check, personal check, or wire transfer.
You keep a copy of the check and request a receipt. We then hold the money in escrow until closing. The earnest money is then applied to your down payment at closing.
Instead, choose a third party such as a title or escrow company like Lilly Title & Settlement.
As the buyer, you will make the check out to the third party and it will be deposited by certified check, personal check, or wire transfer.
You keep a copy of the check and request a receipt. We then hold the money in escrow until closing. The earnest money is then applied to your down payment at closing.
Buyer Deadlines and Responsibilities: Are You Prepared?
Your contract will usually have a timeline for getting the contingencies completed. If you miss those deadlines, it is possible for the seller to renege on the contract.
At that point, the seller is within her legal right to take your earnest money deposit with her.
Generally speaking, owners want to sell their homes! So missed deadlines have to be flagrant for an owner to renege.
Just make sure you know all the contingencies and when the deadlines are due. Stay in touch with your real estate agent about your progress, so that she can keep the seller’s agent informed.
At that point, the seller is within her legal right to take your earnest money deposit with her.
Generally speaking, owners want to sell their homes! So missed deadlines have to be flagrant for an owner to renege.
Just make sure you know all the contingencies and when the deadlines are due. Stay in touch with your real estate agent about your progress, so that she can keep the seller’s agent informed.
Conclusion
Earnest money deposit seems like another real estate closing expense, and it is. The difference is that it’s very important. It proves to the seller that you are serious about purchasing the property.
Additionally, it offers protection for both you and the seller. As a serious buyer, put an earnest money deposit at the top of the list as part of a successful real estate transaction.
When you're ready to buy or sell a home, turn to Lilly Title & Settlement for your real estate closing needs. A woman-owned company, we're a trusted title and settlement company in Staunton, VA.
Additionally, it offers protection for both you and the seller. As a serious buyer, put an earnest money deposit at the top of the list as part of a successful real estate transaction.
When you're ready to buy or sell a home, turn to Lilly Title & Settlement for your real estate closing needs. A woman-owned company, we're a trusted title and settlement company in Staunton, VA.
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