What is an earnest money deposit?
An earnest money deposit is the initial deposit you make when signing a purchase agreement. In some cases, you may deposit the earnest money when submitting a purchase offer. Unfortunately, there are many ways that can lead to losing your earnest money deposit.
How much is the earnest money deposit?
There are no specific requirements for the earnest money deposit, but potential buyers generally put down between 1% to 5% of the purchase price as an earnest money deposit. The amount of the earnest money deposit primarily depends on your market and local customs.
How to protect your earnest money deposit
To protect your earnest money deposit, follow these tips: Do not give the earnest money deposit directly to the seller. Make the deposit payable to a reliable third party, such as a well-known and experienced real estate agent, a law firm, an escrow company, or a contract registration company. Verify that the third party will deposit the funds into a separate escrow account. Obtain a receipt. Generally, do not agree to release the earnest money deposit until your transaction is closed.
How can you lose your earnest money deposit
Typically, buyers can lose their earnest money deposit if they fail to follow the terms of the purchase contract. For example, the contract may specify when inspections should be conducted and when the buyer can back out of the contract. If the buyer waits for an appraisal and then withdraws from the contract after the deadline, they may lose their earnest money deposit.
How the real estate deposit can protect your earnest money deposit
A real estate deposit protects your earnest money deposit. For instance, suppose your purchase agreement includes a home inspection clause. If the seller agrees to make necessary repairs and ultimately does not perform them, you can choose to withdraw from the contract.
Frequently Asked Questions (FAQs)
What is a typical earnest money deposit? There are no specific requirements for the amount of the earnest money deposit, but it typically ranges from 1% to 5% of the total purchase price. This may vary based on the local market, so ask a local real estate agent what is expected in your area.
Is the earnest money deposit refundable? If the home purchase is successful, the earnest money deposit will be applied toward the seller. If the purchase fails, it may be refunded to the buyer, depending on the circumstances.
Source: https://www.thebalancemoney.com/protect-your-earnest-money-deposit-1798341
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