So you've made it to the point where you've found a home in Georgia that you want to put an offer on. Then your agent tells you to give 1% of the purchase price for an earnest money deposit. What is it and why do you have to pay it? Read on.....
Most offers to buy a house are accompanied by a personal/cashier's check. This check is generally referred to as the "earnest money deposit." The basic reason for the deposit is to convince the seller that the buyer "earnestly" intends to purchase the property. It is not required to purchase a home but most sellers won't seriously consider an offer without it.
The amount of the deposit varies from purchase to purchase, depending on a variety of factors. If a property generates a lot of interest, a buyer may make a larger deposit to convince the seller that their offer is stronger than the others. During hot markets, deposits are generally larger than during slow markets.
In normal times, buyers should hesitate before making a deposit that is larger than 2% of the purchase price. Underwriting guidelines require strict documentation of such deposits.
There are reasons to try and keep the deposit as small as possible, but not so small that the seller doesn't take it seriously. Once a buyer and seller agree to terms, the earnest money deposit is usually placed in a "trust" account. At that point it is no longer the buyer's money -- it belongs jointly to the buyer and seller.
Almost all deals close and the earnest money funds are applied to the buyer's down payment & closing costs. There are exceptions to that rule.
Some sellers think that if the deal falls through, the earnest money deposit is automatically forfeited. Some buyers think that if the deal doesn't close, they automatically get the money back.
Neither one is true.
Even when the failure to close is the buyer's fault, the seller doesn't have a right to the deposit as a way to punish the buyer. The buyer doesn't automatically get the entire deposit back, even when they are not at fault.
First, there may be a small amount of cancellation fees that must be paid. These fees are collected from the deposit. Second, since the deposit is held in trust, both the buyer and seller must agree on the disposition of the funds in writing and signed by all parties.
If something goes wrong very early in the deal, the seller normally understands and the deposit is usually refunded to the buyer without a fuss. When things go south later on in the transaction, both parties usually exercise common sense and negotiate a fair solution. It is uncommon that the buyer and seller don't agree.
The point is that is always makes sense to reach an agreement. Failure to agree ties the money up for awhile, which could possibly lead to further legal action and inconvenience, and it just becomes a frustrating mess for both sides -- more so than you realize at the time.
Serious problems are the exception, not the rule. Most challenges are routine to a qualified professional real estate agent. The situation may be new to you, but the agent may have dealt with it many times in the past.
Most offers to buy a house are accompanied by a personal/cashier's check. This check is generally referred to as the "earnest money deposit." The basic reason for the deposit is to convince the seller that the buyer "earnestly" intends to purchase the property. It is not required to purchase a home but most sellers won't seriously consider an offer without it.
The amount of the deposit varies from purchase to purchase, depending on a variety of factors. If a property generates a lot of interest, a buyer may make a larger deposit to convince the seller that their offer is stronger than the others. During hot markets, deposits are generally larger than during slow markets.
In normal times, buyers should hesitate before making a deposit that is larger than 2% of the purchase price. Underwriting guidelines require strict documentation of such deposits.
There are reasons to try and keep the deposit as small as possible, but not so small that the seller doesn't take it seriously. Once a buyer and seller agree to terms, the earnest money deposit is usually placed in a "trust" account. At that point it is no longer the buyer's money -- it belongs jointly to the buyer and seller.
Almost all deals close and the earnest money funds are applied to the buyer's down payment & closing costs. There are exceptions to that rule.
Some sellers think that if the deal falls through, the earnest money deposit is automatically forfeited. Some buyers think that if the deal doesn't close, they automatically get the money back.
Neither one is true.
Even when the failure to close is the buyer's fault, the seller doesn't have a right to the deposit as a way to punish the buyer. The buyer doesn't automatically get the entire deposit back, even when they are not at fault.
First, there may be a small amount of cancellation fees that must be paid. These fees are collected from the deposit. Second, since the deposit is held in trust, both the buyer and seller must agree on the disposition of the funds in writing and signed by all parties.
If something goes wrong very early in the deal, the seller normally understands and the deposit is usually refunded to the buyer without a fuss. When things go south later on in the transaction, both parties usually exercise common sense and negotiate a fair solution. It is uncommon that the buyer and seller don't agree.
The point is that is always makes sense to reach an agreement. Failure to agree ties the money up for awhile, which could possibly lead to further legal action and inconvenience, and it just becomes a frustrating mess for both sides -- more so than you realize at the time.
Serious problems are the exception, not the rule. Most challenges are routine to a qualified professional real estate agent. The situation may be new to you, but the agent may have dealt with it many times in the past.
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