What Is the Importance of Earnest Money in a Real Estate Transaction?
There are also many financial steps to consider and have the money at hand.
From the moment you meet with an agent you are going to be given information that requires action to make a transaction run smoothly.
In purchasing a home, there are lots of financial responsibilities that fall on the buyer to make sure that they have the dollars to cover the expenses or the deal could fall apart.
A few of these are: ~Down Payment ~Inspection Fees ~Appraisal Fees ~Insurance ~Earnest Money Let's consider that last one, earnest money.
Why is this so important to the transaction.
You are probably thinking I am already providing the seller with my pre-approval letter that shows the bank has look at my financial position and agrees that the offer that I am making to the seller is in my budget.
So why do I need to provide the seller with an earnest money check also? This will show the seller you true intent to follow through with the sale.
Earnest money checks can range in amounts based on the offer price you are making to the seller.
Most agents will tell you 10% of the offer price should equal the amount of the earnest money check.
This check (unless you are making an offer on a short sale home) will need to be deposited into the selling agents brokers earnest money account within 3 days of the offer being made.
If you are doing an inspection, you can put terms into the contract that stipulate the earnest money check NOT be deposited in the account until the inspection contingency is removed from the contract.
The reason for this contingency would protect the buyer to ensure that if something should negatively appear in the inspection and the buyer decides to walk away from the property, they would be able to void the check and move on.
Some brokerages will stipulate that they do not have to issue your check back for up to 30 days after the cancellation, so make sure you ask what the sellers brokers return policy is prior to making the offer and turning your check over.
Once the check is turned over, it will be deposited immediately in most situations.
So make sure you have the dollars in the account to cover your check.
What this check shows the sellers is your full commitment to purchase their property.
The lower your earnest check the seller may be hesitant to move the home to a pending status on the MLS for fear of losing other potential buyers.
So when you are getting ready to write out the check, make sure your TRUE intentions reflect in the price of your check.
The other thing to remember is once you and the seller have signed all the documents, all contingencies have been removed and all CIC documents time frames have been passed (if these apply), your ability to received these monies back in full or at all are not in your favor.
However if something were to change in your financing abilities, and your contract indicated upfront that if for any reasons financing can not be made, the buyer is to receive all earnest monies back, this money is as good as gone.
The seller may also be able to go after you, your agent and their broker legally for any other fees or moneys the seller put into the property or deal to fulfill their side of the contract.
The thing to remember, once you sign all the contracts, you are in a legally binding contract!! It's as easy as that.
If you truly want the home you are making an offer on, show your strength & full interests in the amount of your personal money you are willing to put in with the earnest money check.
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