When you are buying or selling a home, you may be bombarded with real estate jargon that you aren’t familiar with. One advantage to working with a real estate agent is that they will educate you on the different parts of a real estate transaction and make sure you understand how this impacts you.
Earnest submit an offer to purchase. The amount of earnest money is a part of the contract and in most cases can be negotiated just like price or any other item when the buyer and seller are negotiating. money, also referred to as “good faith money” by some people is the initial deposit a buyer makes on a home when they
Once both parties agree to the contract and it is signed, the earnest money is turned over to the party that is designated to hold the earnest money per the contract. The person holding the earnest money may be the firm that has the house listed or the firm that represents the buyer. An important thing to note about how the earnest money is held is that this money is held in an escrow account on the buyer’s behalf until the parties are ready to close on the property. At that time, the money will be applied to the purchase price of the property.
In our market, the minimum earnest money amount we commonly see is $1,000.00 but depending on the price of the home and the competitiveness of the current market, the initial earnest money deposit may be much larger. In a multiple offer situation, many buyers choose to strengthen the terms of their offer by including earnest money amounts of $5,000 and up. While some buyers may not be in a position to do this, it can give your offer an advantage depending upon the other terms of your offer.
It is common to see buyers make a second earnest money deposit after they have done their initial investigations of the property. This shows that you are committed to the purchase of the home and further reduces the amount you must bring to closing.
With all earnest money deposits, the money is refundable to the buyer if the contract is cancelled with just cause by either party. Acceptable reasons for cancellation include but are not limited to an issue arising from the inspection or an issue with the property financing. Getting preapproved for a mortgage prior to purchasing a home can decrease the number of issues that arise from financing and so the seller will expect to see this with your offer to give them confidence in your ability to obtain financing. Issues may still arise but this does decrease the number of them. If the buyer chooses not to purchase the home without a justifiable reason, their earnest money will not be returned.
Take note that even with a justifiable reason to cancel the contract, both buyer and seller must agree to the release of the earnest money for that to happen. If the two parties aren’t in agreement, the earnest money will stay in the escrow account until both the buyer and the seller agree in writing or a court order determines what to do with the money.
While you will want to understand as much you can about the process when you are buying or selling a home, count on your agent to educate and advise you along the way.
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