Earnest Money Deposits HOME BUYER: Episode 00012


 Earnest Money Deposits

When you make an offer to purchase a home/real estate, you, as the buyer, will include an “earnest money” deposit. This deposit shows the seller that you’re serious about the offer to purchase their property.

The amount of earnest money varies based on the type of property being purchased and local market conditions. A typical deposit might be 3-10% of the amount you offer in the offer to purchase. The final amount is negotiable and will depend on such things as how long it will take you to close and the number and types of contingencies included in the contract. Your Realtor®, will help you determine an appropriate amount of earnest money to include with your offer to purchase.

Who Holds the Earnest Money?

The sales contract will dictate who holds the earnest money. Usually the seller’s agent will deposit the earnest money in a trust or escrow account until closing. At closing, the earnest money is applied to the total purchase price including closing costs. The trust or escrow account will be managed by an independent third party in most cases, e.g., a title company or real estate attorney who conducts closings. Earnest money deposits cannot be released if a transaction does not reach closing without the express consent of both the Buyer and the Seller.

In the event the sale does not close, the sales contract generally spells out the conditions under which you would forfeit the earnest money. Generally, if the seller meets all the terms of the contract, the seller will keep the earnest money. If the seller does not meet the terms of the contract, then you, as the buyer, receive a total refund of the earnest money. The best advice is to read your sales contract thoroughly and get your questions answered before you complete the offer. If you’re not satisfied with the explanation, seek professional legal counsel. A real estate purchase offer is a legally binding contract and you and the seller are bound by its terms and conditions. Real estate professionals deal with these types of issues every day and they’ll use their knowledge and experience to advise you how best to deal various situations.

Some items that would be reason for the deal not closing is the property did not appraise for the offered amount or it did not pass inspection. Again when in doubt seek legal counsel.


2 comments for “Earnest Money Deposits HOME BUYER: Episode 00012

  1. Salim
    March 14, 2015 at 12:14 pm

    Sir, What happens if the deal does not happen from the Buyers side, after paying the Earnest money?

  2. lfsanek
    March 15, 2015 at 1:42 pm

    That would be dependent on the offer forms your agent has used. Generally if the property does not appraise at the accepted offer price or the property has not past inspection then the earnest money deposit should be returned if the buyer does not want to proceed with the deal. Now the clarifications.

    A) If your taking a loan the lender will only make a loan based on a percentage of the appraised value of the property. That percentage is based on your down payment and the loan amount and the type of loan being used.
    B) If a cash purchase you would need an appraisal contingency that requires the property to appraise at or above the accepted agreed to offer price. If it does not appraise the contingency would allow the buyer to cancel the deal and get the deposit money returned.
    C) An inspection contingency allows the buyer to have an pay for a home inspection. After the inspection the buyer then can decide if they want to proceed with the deal or not. The inspection contingency should allow for the buyer being the only one that can decide if they want to proceed or not with the deal after they receive the inspection report. An inspection contingency normally has a time frame that the inspection must be completed in, including the decision to move forward or not with the deal.

    Each state may vary, these statements are based on the forms Florida real estate agents use. I suggest if after you review the offer forms being used that if you are not comfortable that you have a real estate attorney review them to make sure you can cancel the deal in those two situations or any other issues you may have. Each transaction is different based on the state of purchase, property, seller, buyer and contingencies agreed on. Your agent should be able to guide you through the process or refer you to a real estate attorney if you don’t know of any.

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