The Earnest Money Deposit
Most offers to buy a house are accompanied by a check. This check is generally referred to as
the "earnest money deposit." The basic reason for the deposit is to impress the seller that the
buyer "earnestly" intends to purchase the property.
The amount of the deposit varies from purchase to purchase, depending on a variety of factors.
If a property generates a lot of interest, a buyer may make a larger deposit to convince the
seller that their offer is stronger than the others. During "hot" markets, deposits are generally
larger than during slow markets.
In normal times, buyers should hesitate before making a deposit that is larger than two percent
of the purchase price. Underwriting guidelines sometimes require strict documentation of such
deposits. A buyer may often be required to show a bank statement just prior to the date of the
check, plus evidence that the check actually cleared the bank. If you're closing quickly, this
might require a trip to the teller window at your bank.
There are reasons to try and keep the deposit as small as possible, but not so small that the
seller doesn't take it seriously. You see, once a buyer and seller agree to terms, the earnest
money deposit is usually placed in a "trust" account. At that point it is no longer the buyer's
money -- it belongs jointly to the buyer and seller.
Almost all deals close and the earnest money funds are applied to the buyer's down payment
and closing costs. As the saying goes, however -- there are exceptions to the rule.
Some sellers think that if the deal falls through, the earnest money deposit is automatically
forfeit. Some buyers think that if the deal doesn't close, they automatically get the money back.
Neither one is true.
Even when the failure to close is the buyer's fault, the seller doesn't have a "right" to the
deposit as a way to "punish" the buyer. Nor does the buyer automatically get the entire deposit
back, even when they are not at fault.
First, there are normally a small amount of cancellation fees that must be paid. These fees are
collected from the deposit. Second, since the deposit is held in trust, both the buyer and seller
must agree on the disposition of the funds. This is a quirk of law in most states and the real
estate agents and their companies have no control over the situation.
If something goes wrong very early in the deal, the seller normally understands and the deposit
is usually returned to the buyer without a fuss. When things go awry later in the transaction,
both parties usually exercise common sense and negotiate a fair solution. In a few rare
occurrences, the buyer and seller find it difficult to agree.
The point is that is always makes sense to reach an agreement. Failure to agree ties the money
up for awhile, could possibly lead to further legal action and inconvenience, and it just becomes
a frustrating mess for both sides -- more so than you realize at the time.
Serious problems are the exception, not the rule. Most "challenges" are routine to a qualified
professional real estate agent. The situation may be new to you, but the agent may have dealt
with it many times in the past.
Most offers to buy a house are accompanied by a check. This check is generally referred to as
the "earnest money deposit." The basic reason for the deposit is to impress the seller that the
buyer "earnestly" intends to purchase the property.
The amount of the deposit varies from purchase to purchase, depending on a variety of factors.
If a property generates a lot of interest, a buyer may make a larger deposit to convince the
seller that their offer is stronger than the others. During "hot" markets, deposits are generally
larger than during slow markets.
In normal times, buyers should hesitate before making a deposit that is larger than two percent
of the purchase price. Underwriting guidelines sometimes require strict documentation of such
deposits. A buyer may often be required to show a bank statement just prior to the date of the
check, plus evidence that the check actually cleared the bank. If you're closing quickly, this
might require a trip to the teller window at your bank.
There are reasons to try and keep the deposit as small as possible, but not so small that the
seller doesn't take it seriously. You see, once a buyer and seller agree to terms, the earnest
money deposit is usually placed in a "trust" account. At that point it is no longer the buyer's
money -- it belongs jointly to the buyer and seller.
Almost all deals close and the earnest money funds are applied to the buyer's down payment
and closing costs. As the saying goes, however -- there are exceptions to the rule.
Some sellers think that if the deal falls through, the earnest money deposit is automatically
forfeit. Some buyers think that if the deal doesn't close, they automatically get the money back.
Neither one is true.
Even when the failure to close is the buyer's fault, the seller doesn't have a "right" to the
deposit as a way to "punish" the buyer. Nor does the buyer automatically get the entire deposit
back, even when they are not at fault.
First, there are normally a small amount of cancellation fees that must be paid. These fees are
collected from the deposit. Second, since the deposit is held in trust, both the buyer and seller
must agree on the disposition of the funds. This is a quirk of law in most states and the real
estate agents and their companies have no control over the situation.
If something goes wrong very early in the deal, the seller normally understands and the deposit
is usually returned to the buyer without a fuss. When things go awry later in the transaction,
both parties usually exercise common sense and negotiate a fair solution. In a few rare
occurrences, the buyer and seller find it difficult to agree.
The point is that is always makes sense to reach an agreement. Failure to agree ties the money
up for awhile, could possibly lead to further legal action and inconvenience, and it just becomes
a frustrating mess for both sides -- more so than you realize at the time.
Serious problems are the exception, not the rule. Most "challenges" are routine to a qualified
professional real estate agent. The situation may be new to you, but the agent may have dealt
with it many times in the past.
| Realistic Listing Fees For This Unrealistic Market Click Here Or Call Doug Baird For More Details 616-554-5796 Michigan For Sale By Owner |
