What is an Earnest Money Deposit and why is it important?
An Earnest Money Deposit (or “EMD”) is an important part of the home buying process. It is an amount of money that you will deposit (in escrow) that tells the Seller you are committed to the purchase of the home. It’s important to know that this earnest money deposit is not an extra cost of buying a home. It will be credited towards the down payment at closing. In the event that it exceeds your mortgage down payment and settlement costs, you will receive the balance at closing.
How much should I offer?
This can differ depending on the real estate markets and can also depend on whether or not there are multiple offers on the property. If you feel that you are not in competition, you can expect to pay around 1-2% of the sales price in most markets. For example: a $300,000.00 sales price x 1% = $3,000.00 EMD. If you are in competition with other offers, you may want to offer more. This will tell the Seller you are more serious about their home and could help you win the offer. A good Realtor can really help you structure the correct offer with the right amount of EMD.
Is my money safe?
In most cases you will write the check to your Realtors, Real Estate Brokerage Company or the company that will be assisting you in the settlement (Title Company). Never write the check to the Seller or their Realtor directly. The money is usually due very shortly after the contract is fully accepted by all parties (ratified) and will be placed in an escrow account. Shortly before you go to settlement, it will be released so it can be applied towards your settlement cost and down payment on the day you purchase the home. In the event the amount you put down exceeds the amount needed for these cost, you will get a refund of the difference. This is your money, and it is treated as such. It is only applied to your costs.
if I do not buy the house, how do I get my money back?
Every market can be different when it comes to answering this question. Make sure you read and understand the contract. It should state what happens to the EMD if you no longer qualify (or decide you do not want to buy) the home. If you are within your rights to cancel the contract, the Seller will agree to release the funds back to you in full. However, there are many different ways this can be handled. Not all are not favorable, so understand the contract you are signing and discuss any concerns you may have with your Realtor. If you are not comfortable with the language that is written in the contract be sure to consult an attorney before signing to ensure your rights are protected too.
THE BOTTOM LINE
An Earnest Money Deposit is your way of telling the Seller “I love your home and really want to buy it.” In most cases the money remains yours and is applied to your costs in regards to the purchase. It can also be a great way to leverage your offer in the event you find yourself in competition with another Buyer. A great Realtor can guide you through the offer process and help you structure a deal that is more than just about a sales price.
The JS Realty Team is here to help! Contact us at any time, we are more than happy to lead you to great Real Estate solutions.
