Earnest money is one of the most common concerns of a number of buyers. Normally, there is no set obligation as to how much earnest money is needed. However, certain factors such as the state laws and marketplace influence the amount of your earnest money. Now, it’s essential for both the buyers and sellers to have a good understanding of earnest money basics. Basically, offers to make a property purchase are accompanied by a check i.e. the “earnest money deposit.” This deposit is meant to make an impression on the seller that the buyer “earnestly” wants to make the purchase.
As far as the amount of the deposit is concerned, it fluctuates from purchase to purchase, based on a number of factors. In case, a considerably great deal of interest is generated by a property, the buyer is likely to make a bigger deposit. And talking about the “normal” market times, buyers should carefully analyze all the factors before making any deposit which is bigger than the purchase price by 2%. In certain cases, underwriting guidelines call for strict documentation of these deposits. Besides, the buyer may even have to provide a bank statement in addition to the evidence proving that the check got approved by the bank.
One should understand that trying to keep the deposit as small as possible is certainly a wise move. However, the amount should only be reduced to a reasonable extent. An inappropriate amount could give the “not-too-interested” impression to the seller. Once the buyer and the seller have entered the agreement, the earnest money deposit is kept in a “trust” account which is actually a joint account of both the parties. Moreover, almost every deal is closed and the earnest money is applicable to the buyer’s down payment and closing costs.
In case, the deal falls through, the seller isn’t capable of making the deposit, even if the buyer is responsible for the failure to close. Then, there are some cancellation fees that are to be paid, collected from the deposit. Remember, both the parties are supposed to readily agree on the disposition of the fund as the deposit is held in trust. On the other hand, if there are early issues with the deal, the seller is likely to cooperate and the deposit is directly given back to the buyer. If however, the transaction experiences late issues; both the parties have no option other than understanding each other’s position and coming up with a fair solution.
