Understanding
Earnest Money
Make sure
you fully grasp what an earnest-money deposit is—namely, proof that a buyer is
committed to completing a sale by having skin in the game. The earnest-money
deposit is a negotiable amount between the buyer and seller, but usually about
1% to 2% of the purchase price (although it can shoot up to 10%). This money is
generally held by the seller's broker or a title company, to be used as a
credit toward the down payment and closing costs.
In an
aggressive seller's market, many homes receive multiple offers from anxious
buyers. One of the ways to make an offer stand out is to offer a considerable
earnest money deposit. If a high
earnest-money deposit scares you, remember you'll have to come up with the down
payment 30 to 45 days after making an offer, anyway. For example, on a $500,000 mortgage, a 15% down
payment is $75,000.
One mistake
buyers make with their earnest-money deposit is agreeing to remove
contingencies they may legitimately
need. For instance, if buyers agree to
remove a loan contingency and their loan falls through, they'll lose their
earnest money. Other contingencies, such
as a home that's uninsurable, inspection issues, a problematic title search, or
if a house doesn't appraise—also protect a buyer by allowing the penalty-free
canceling of a contract. Make sure you
are aware of all deadlines and contract requirements and stay on top of the
timeline for completion or termination of the contract for valid reasons.
This may
seem like a no-brainer, but it's easy to get swept away by a home's cool
features when you first see it. Also, in a rapid paced market, you can become
overly anxious about buying. A buyer may
put in an offer only to realize days later that granite counters and stainless
appliances are incredible but the overall floor plan just doesn’t work for your
needs. Make sure that you're 100%
serious about buying a home before making an offer. If you get cold feet and back out, it's likely
that you won't get your money back.
Know when to
let it go. I have worked with clients
who have had major life changes during the midst of purchasing a home. Unless you are working with an extremely
understanding seller, they will most likely expect to keep the earnest money
deposit. After all, they have taken
their property off the market in order for you to proceed with the purchase. There will also be other expenses that would
normally be paid at closing that your deposit will need to cover.
Personal
problems may be very serious to you, but they're not a valid reason to cancel a
home purchase. And if you're bailing on a deal with no legal justification,
fighting for your earnest money deposit is probably a waste of time.
Michael Elliott has been selling real
estate at the Lake of the Ozarks since 1981.
He is one of the most respected brokers in the area. If you have interest in a career in real
estate or would like Michael’s assistance in the sale or purchase of property,
you can reach him at 573.365.SOLD or cme@yourlake.com View thousands
of lake area listings at www.YourLake.com $1 million plus homes at www.LakeMansions.com You can also
view each months’ article, ask questions and offer your opinion on Michael’s
real estate blog, www.AsTheLakeChurns.com
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