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Do you need an earnest money deposit?

Do you need an earnest money deposit?

Do you need an earnest money deposit?

Sticky
Feb 05, 2018
Comments Off on Do you need an earnest money deposit?

You may have heard the term “earnest money deposit”, or at least something close to it. As a homebuyer, what does it actually mean for you? And do you need to be worried about it?

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Just like it sounds, an earnest money deposit is a cash deposit on a home that you want to purchase. It shows the seller that you’re serious about buying the home and are happy to end your search.

It’s relative to the price of the home
There are no rules saying how much the deposit needs to be, but it’s typically a small percentage of the overall cost of the home. The amount will depend on your local real estate market, but it tends to be around 1-2% on average. It’s not unusual for this number to go up to 3% in some larger cities, but I’ve typically seen 1-2% in Durant, OK. It’s up to you and the seller to agree on a number that best suits you both.

You can (and should) make it conditional
1-2% is not a small amount, and it’s likely a portion of your hard earned down payment. You want to make sure you’re covered under contract and able to receive a refund of the amount if the sale is canceled for any reason e.g. your financing falls through, the seller backs out, or a home inspection goes awry, a contract will have you covered. It can be tempting to offer a non-refundable deposit on your dream home, but you never know what will happen in the closing process. If the seller isn’t happy with placing conditions on the deposit, consider offering a much smaller non-refundable fee instead.

The money remains in escrow
When you’re offering an earnest money deposit, it means you’re serious about buying the home and don’t want to look at any others. However, that doesn’t mean you’re giving up a portion of your precious savings too early. The deposit you offer will remain in escrow until the sale is finalized and all conditions have been met. What ‘escrow’ means is that your money will be held in a neutral 3rd party account. Afterwards, that amount is typically put towards your closing costs. If a seller asks you to give them cash directly, don’t do it. Talk to your real estate agent about the best way to secure your earnest money deposit.

You can transfer escrow
Depending on the real estate market in your city, you may or may not be able to transfer your earnest money deposit. A case in which I encourage an earnest money deposit to be transferred is when a buyer falls absolutely in love with a home but the contract falls through. Transferring the escrow to the next contract can expedite the process. However, if you do decide to get the earnest monies back, this can be done by having your agent submit the proper forms. Earnest money can help close the sale of a home where a seller is motivated to sell quickly. If your contract falls through, find a home that is “the one” and are comfortable with 1-2% remaining in a 3rd party escrow account – I say transfer the earnest money deposit!

Brian A. Allen is a new Realtor and is full of energy, excitement and zeal for every sale. He spent most of his career in marketing and now applies that skill set to the homes his clients want to sell. Click here to learn more about Brian A. Allen

Click here to see my availability and book a time.

Brian A. Allen is a new Realtor and is full of energy, excitement and zeal for every sale. He spent most of his career in marketing and now applies that skill set to the homes his clients want to sell. Click here to learn more about Brian A. Allen

 

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  • About Me

    Hi, I am Brian Allen. Yes, that's correct—the Brian Allen—most notably known for being a country boy with extensive knowledge of digital marketing and a keen interest in helping my clients understand how simple and fun the home buying and/or selling journey can be. Yep, that's me!... Read more

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