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Earnest Money & Why It's So Important!

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Importance Of Your Earnest Money

The Importance Of Your Earnest Money!

"Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home. The money serves as a 'promise' to the home seller and gives the buyer extra time to get financing and conduct the title search, property appraisal and inspections before closing. In most cases, earnest money is delivered when the sales contract or purchase agreement is signed, but it can also be attached to the offer. Once deposited, the funds are typically held in an escrow account until closing, at which time the deposit is applied to the buyer’s down payment and closing costs." (Investopidea.com). 

In Layman's terms--it's the money the Buyer of a house deposits as assurance they're serious Buyers and have the finances to move forward with a home purchase. It's held by Escrow or the Buyers agent and can be applied to the purchase amount of the house.


Is My Earnest Money Ever At Risk?

With every transaction there can be items called contingencies, such as Inspection, Financing, Appraisal, Feasibility, etc. With every contingency comes a deadline in which the terms must be satisfied or formal paperwork needs to be created to extend the deadline. An example of when your Earnest Money is at risk, is if you, as the Buyer, do not perform your part according to the contingencies agreed upon in your Purchase and Sale Agreement. For example: Your offer includes a 10 day inspection period. Within those 10 days you can have the house inspected, contractors give bids, and have the sewer line scoped. This is your opportunity to have the home inspected to your satisfaction! But if you wait until day 11 to conduct your inspection or request items from the inspection to be done by the Seller, your Earnest Money is at risk. How? Not having an inspection during the timeframe you agreed upon doesn't necessarily void a contract, but it does mean that you have lost the right to have an inspection and Seller is not obligated to repair or replace any items you might request be remedied. If you decide to walk away from the transaction at this point, your Earnest Money is at risk.


How Much Earnest Money Should I Put Down?

This is a standard question from Home Buyers, whether first time Buyers or seasoned owners! Typically, we suggest 1 percent of total purchase price. However, in a scenario with multiple offers from different Buyers--you want to submit the strongest offer possible; a higher Earnest Money amount can make the difference. For example: If your offer is identical to another offer on the table i.e. same purchase price, same down payment, quick close, etc., then sometimes the Earnest Money can be the game changer in which offer the Seller chooses. Think of it this way: The higher amount of the Earnest Money Deposit, the less likely the Buyer is going to walk away from the purchase and lose their Earnest Money. The Seller wants a serious Buyer; Earnest Money helps prove your seriousness.


Will I Lose My Earnest Money If I Get Cold Feet?

You've submitted an offer on a house, deposited the Earnest Money, BUT you have found a different house you're sure you'd rather purchase! Or maybe you still love the house, but it's a lot of money and you're feeling overwhelmed! It's entirely understandable--this is a big deal! Something to keep in mind throughout the home buying process is that you have protections set out for you in the offers we write. Consider this scenario: You submit your Earnest Money check on Monday and you have an inspection scheduled for Thursday within the 10-day contingency. On Tuesday, you find another house that you fall in love with. You're sure you want it and it's worth every penny! YOU'RE OKAY! Because we set a 10-day inspection contingency, it allows us to walk from the transaction any time during that period. While it is considered your Inspection Contingency, you can pull the plug for any reason within that timeframe without your Earnest Money being at risk...any reason! I like to say, "You can walk away if the sky is too blue!" So with that said, when you write an offer--or even after you've deposited the Earnest Money, you haven't written in blood. We'll make sure you have the insights you need throughout the transaction and home buying process so you're comfortable at every stage and the process alone is a learning experience! Let's make it so you have the final word in the home you want!




Edited by: Anna Mischke

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