An offer of a house is generally accompanied with a check. Earnest money deposit is this check, which made to let the seller know that the buyer is earnest in his or her attempt to buy the home. Serious buyers and those who aren't so sure about the purchase can be distinguished easily with this earnest money deposit.
The deposit amount is different from one purchase to the next. There are many factors that can have influence on amount of the deposit. The earnest money deposits in seller's markets are often larger than in buyer's markets.
The reason behind is that there are more inquiries about the properties in seller's markets. Therefore, it takes a little more to convince the seller to accept a particular offer.
Process of Using the Earnest Money Deposit
You shouldn't make an earnest money deposit in an amount that is greater than 2 percent of the offer price in a steady or buyer's market.
The earnest money deposit is placed into an escrow account where it will stay until closing, once you have reached an agreement with the seller. Both you and the seller jointly control the money at this point. Generally when the deal closes, the deposit is applied to your down payment and closing accounts.
What happens if the Deal is cancelled Due to Some reason?
This is where sellers and buyers mostly disagree. Sometimes, sellers feel that buyers should surrender the earnest money deposit and they should receive the money. Conversely, buyers argue that in the first place earnest money deposit was their money and it should be returned to them.
Before anything can be done with the funds, it is from the earnest money deposit any cancellation fees that apply are taken directly. After that point, you and the seller must come to an agreement on what should happen with the deposit.
It actually doesn't matter who's at fault for the deal to get cancelled, because the money is held in a third party escrow before the funds will be released, some sort of compromise must be reached.
Only when one of two conditions has been met either both parties give a written authorization or an order is issued from a court of law, the escrow can release the funds. Obviously, this is a better way which is less expensive and time consuming for the two parties for reaching to an agreement.
While in some states there is a statute of limitations, with which the escrow can hold the money without receiving a release authorization from the buyers. The law requires, in most cases, that the deposit be returned to the buyer after this time period has expired.
As the buyer, it is vital that you include stipulations about when the money should be returned to you in the sales contract. For instance, when a deal collapses due to problems, such as, inspections, title search, or some other function.
It is better not to give the earnest money deposit to seller until the offer has been signed. Or else, for some reason if the deal collapses, you could find yourself in a position where your earnest money deposit is held by the escrow and you cannot reach an agreement with the seller.
Related Articles:
|
