What Is An Earnest Money
Deposit?
An earnest money deposit,
also known as a good faith deposit, is a specific dollar amount that a
potential buyer pays to the seller in an effort to display their serious
interest in a property. It's important
to note that an earnest money deposit is not the same as a down payment.
The Purpose Of An Earnest
Money Deposit
An earnest money deposit
is used to secure a purchase contract, which means the buyer doesn't have to
worry about the property being sold out from underneath them. Without an agreement, the seller would be
free to sell the home at anytime. An
earnest money deposit, however, secures the availability of the home as the
potential buyer obtains an inspection, appraisal and financing for the
purchase.
How Much Good Faith Is
Enough
So, just how much of an
earnest money deposit is required?
Truthfully, it depends on a number of factors, including the home's
purchase price, your location and the standard as set by other sellers. In most cases, the earnest money deposit is
negotiable and the seller will be happy in knowing that the potential buyer is
serious enough to offer their money in good faith.
How An Earnest Money
Deposit Is Used
If the transaction is
successful and the buyer follows through with the purchase, an earnest money deposit
is most commonly refunded to the buyer or applied to closing costs. If the buyer defaults or is unable to obtain
financing, the seller often has the discretion to retain the earnest money
deposit as damages or as otherwise described in the purchase agreement.
Using Your Dollars And
Sense
When it comes to an
earnest money deposit, it's essential that buyers know who should receive the
money and how to handle the payment. In
most cases, the deposit should be made payable and presented to a licensed real
estate broker, an attorney or escrow company.
Your Premier Beach Realty Agent can assist in getting your earnest money deposit into the
right hands. It's important to obtain a
receipt, which should clearly outline the purpose of the deposit. The funds will be handled in accordance with
the purchase agreement and/or as agreed upon by both the buyer and seller.
Before handing over a good
faith deposit, make sure that you have faith in the person accepting your
money. Potential buyers should not give
an earnest money deposit directly to the seller, nor should they give it to
anyone who claims to be with a brokerage firm unless their credentials are
verified.