What is an Earnest Money Deposit?

Published by julia | Filed under Buyer / Seller Tips, Listings, Real Estate, Shout Outs

The television is full of home buying shows that supposedly teach the home buyer the real process of buying a piece of real estate. However, not many of these shows approach the topic of the earnest money deposit. The earnest money deposit is money that is presented to the buyer, along with the purchase offer on the home, to convince the buyer that you are truly serious about buying the home.

There are several rules associated with the earnest money deposit, and each of these rules can be applied or not applied depending on the buying situation. The real estate agent helping you to buy the home will be able to guide you through the earnest money deposit process.How Much to Deposit?There is a general rule of thumb that states no more than 2% of the purchase price should be included with the offer as an earnest money deposit. This is a rule for two reasons. The first, if you deposit a large amount of money but are offering lower than asking price, the homeowner may wonder why they are not getting full price on the home. The second, if a bidding battle ensues, the money you place for a deposit could be tied up for quite some time. No one wants to have money they cannot use for another home tied up in a bidding war.I Get the Money Back if the Sale Fails, Right?No, is the simple answer to this question. There are differing rules associated with how the money is utilized if the sale of the home falls through. If the failure of the sale is attributed to the buyer, the seller could keep the money or at least tie up the money for a long period of time.

If the sale falls through due to some fault of the homeowner, the money could still be tied up for a while. Most of the time, a cancellation of offer fee will be withdrawn from the deposit.It is important to understand the rules and laws associated with the earnest money deposit before placing these monies in trust co-owned by buyer and the seller. Real estate agents are trained to work with buyers and lenders. They have worked through many offers and bidding wars which is why it is essential to have a good agent at your side when your money is on the line.

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