One of the most important aspects of a real estate transaction is an earnest money deposit. They help to make buyers and sellers more confident in the probability of closing the deal.
Earnest money is a deposit made by a buyer that establishes their intent to purchase a home and reinforces their commitment to doing so to the seller. It can also give buyers more time to secure financing on a home via a mortgage or another type of loan prior to closing.
Experienced real estate agents will aid you in your home buying and selling journey. Clever Partner Agents can help you to understand the role of earnest money deposits in real estate transactions and how you can use one.
FAQs About Earnest Money
How Long Do I Have to Deposit Earnest Money?
It can vary but once the seller has accepted an offer, buyers will typically have one to three days to make an earnest money deposit. This money is then put into an escrow account and once the sale is closed the money is credited toward the buyer’s down payment.
How Much Earnest Money Should I Put Down?
As there is no set amount of earnest money that one should put down, buyers have to use their best judgment. Typically, the amount is anywhere between 1% to 3% of the sales price, but this can vary based on your state’s laws and the current market. This deposit serves to reinforce your intent to buy the home, so it should be an amount that reflects your commitment to close the deal.
What Happens If Earnest Money Is Not Paid?
If both the buyer and seller agreed to forgo earnest money in the purchase contract, then, while there is a risk of the sale falling through, it’s not a deal breaker.
However, if the buyer and seller both agreed to an earnest money deposit and the buyer does not pay it, there will be consequences. A lack of payment can result in a void purchase contract and the seller is allowed to put their home back on the market and accept other offers.
Is Earnest Money Required?
No, not legally. Buyers and sellers can negotiate the earnest money deposit and whether it is needed. But typically an earnest money deposit is requested when a seller takes their home off of the market for inspections and other procedures related to closing.
If both parties agree the home doesn’t have to be taken off the market in the purchase contract, then the seller may not ask for earnest money.
However, it behooves both the buyer and the seller to utilize an earnest money deposit. Buyers gain a sense of security that they will not have the house swept out from under them if it stays on the market and sellers get the buyer’s commitment to the purchase. Buyers can also use their earnest money deposit credit toward their down payment.
Do You Get Your Earnest Money Back if Financing Falls Through?
This depends on the contents of your purchase contract, it’s important to read through a purchase contract prior to signing. If you have any questions about your contract, you can walk through it with your realtor.
You and your realtor should look for any contingency clauses in the contract regarding financing from a lender. If there is a clause that requires a letter from your lender to complete the sale, your earnest deposit should be refunded and go towards your down payment.
Also, make sure you understand contingencies that protect you and your earnest money. Contingency clauses are invaluable in cases when your offer is rejected, the home fails inspection, and any other situation that would cause the sale to fall through.
What a Clever Partner Agent Can Do for You
An experienced real estate agent can tell you everything that you need to know about earnest money. Clever Partner Agents can answer all your questions, whether you are selling or buying a home.
Partner Agents go above and beyond to provide great service to both buyers and sellers. They work to get buyers in qualifying states a Home Buyer Rebate of $1,000 or up to 1% of your home’s sale price if your home sells for more than $500,000.
Sellers can save money on real estate commission fees as Clever Partner Agents work for a flat-rate fee of $3,000 or 1% of your home’s sale price if it sells for more than $350,000.