Earnest Money has become one important component in most real estate contracts. It is the assurance the buyer gives to a seller to show that they are serious about buying there home. When a seller puts there home on the market to sell they are looking for the best terms, highest net and fastest closing time frame. Once the home is under contract it is taken off market and put into pending status. This normally halts the activity on the property while it is under contract. Any interested buyers other than the buyer under contract with the seller can now only be entertained as back-ups. Should your contract fall through it gives the back-up offers a chance to be in first position to purchase the home.A contract can have a life span of 30 days up to an astounding 120 days or more depending on the type of sale it is or the terms of the contract. Most short sales can be very lengthy and cause the home to be off market actively for months. Even if the home is a regular home purchase with no special circumstances such as a Foreclosure, Estate Sale, or a Divorce Sale it can still be at least 45 days before it escrows. Keep in mind the entire time the home is not being marketed to additional buyers because the seller has committed to the buyer that won the contract.
This is where earnest money comes into play. The buyer offers earnest money of usually 500.00 or more to solidify the contract. It is an act of good faith towards the seller. Earnest Money assures the seller that he/she is taking there home off market for a willing, ready and hopefully an able buyer.
In some cases 500.00 is sufficient for earnest money. In a market where there are multiple buyers bidding on one home or if the seller has already had a bad experience with another buyer, they may raise earnest money to 1% of the purchase price or more. It can be a hefty price tag and is normally paid per the contract guidelines once the home is under a binding agreement.
Earnest money is one of the first expenses buyers encounter when buying a home. If you have not been informed by your agent or lender during your buyers consultation it can hit you by complete surprise. Also if you do not perform to the terms of the contract or fail to secure your loan to purchase the home before your financing contingency is up, you may be in danger of losing your earnest money to the seller. There is also a due diligence period that a buyer uses to get an inspection, find out about the HOA Covenants Codes & Restrictions, conduct a survey or anything you choose to use that time for to find out if this is the right home for you. All of these are conducted at your own expense. However, if you fail to inform the seller before your due diligence period ends that you no longer want the home ect, than you may be in danger of losing your earnest money to the seller as well.
I will cover some of the contingencies that apply directly to earnest money in another blog but if you have questions feel free to contact me. Of course I am not a lawyer so any legal questions will be directed to an attorney that can help you.
Morrishia Dooley-Associate Broker
Solid Source Realty
770-475-1130 EXT 3815-OFFICE
678-886-8353- DIRECT
housechiq@gmail.com
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