Earnest Money?!? I Earnestly Want to KEEP My Money!!!

Questions regarding Earnest Money have come up quite a bit recently and I realized that too often, we take for granted the terms we use in Real Estate and don't realize that clients may not fully understand what we mean. Therefore, I commit to explain as many of these ambiguous terms as possible. I hope this helps you make the best most well-informed decision possible for you and your family. These informative posts will be among our new, more casual posts we have decided to include as well...






We apologize for our extended absence from these pages. We have spent the past few months sorting out chaos! In the midst of it all I had more blog ideas come to mind about family, adoption and holding onto your faith during hard times than I did Real Estate. So I felt the need to abstain from writing. Then I realized, this crazy family life is part of who we are! The Dunn Team is a Husband and Wife team! We are Parents as well as Realtors. Therefore, from now on our blog will consist of a smorgasbord of posts, ranging from posts about family, faith, and adoption (something new we are smack in the middle of....more about it later) to posts about local sales, and community events, as well as Real Estate terms, news and updates. We hope you enjoy our new format and that it helps you learn about Real Estate in your area so you can become well-informed Buyers (and Sellers) while you get to know us better as Realtors. You will get to see behind the professional veil to see who we really are and what we are about. We realize some may find this unprofessional, but we decided to no longer concern ourselves with the way others feel we should do business, but focus instead on how we feel led to do so. We'll begin our new series with an in depth look at Earnest Money.

First of all, What is Earnest Money (or EM for short) !?! Simply put, it is the money you put down with your initial offer to purchase a home to show the sellers you are serious about the transaction. It is not legally required when putting in an offer on a home, but it has become a very common practice. Sending a copy of an EM payment with an offer shows the sellers and their agent(s) that as a Buyer, you are ready, willing and able to buy that home today. It is a "sign of good faith" so to speak. Below I will cover the most common questions we have heard regarding EM:

1. "How much EM do I have to put down?"     There is no set amount, again, because it is not legally required and therefore not regulated. Sometimes I have heard that the general rule of thumb is 1% of the purchase price, however, we have found common practice to be as as follows:
   
   
   
   
   
   $500 for a home under $100,000
   $1000 for a home $100,000 - $200,000
   $1500 for a home $200,000 - $300,000
   and $2000 for a home priced $300,000 and above
   
   
    Of course, there is fluctuation between sellers and what they will require. Bank selling foreclosures may require more.  The more EM you provide though, the more impressed the sellers could be, especially in a multiple bid situation. It helps the sellers know you are a serious buyer, and this confident helps ease their minds when they consider taking their property off the market and possibly passing up other better offers to deal only with you.
   
   
   
   
   
   
   
   
   
   
   
   
   
2. "Do I pay with cash, check, or certified funds"     Check is usually the preferred method. Cash is rarely preferred due to the lack of paper trail. Sometimes, a seller (usually banks/foreclosures) will require certified funds to ensure good funds.
   
   
3. "Who do I make the payment to?"     Most commonly, the check is written to the buyer's representing broker (Buyer's agent's company) , however, often sellers will request the check be written to their representing broker (Listing agent's company). IE: If you are being represented by Jane Doe of ABC Realty Company, you will probably make the check out to ABC Realty Company. If the house you are interested in buying is listed by Jack Brown of XYZ Real Estate Company, you may have to make it out to XYZ Real Estate Company. Your agent will be able to tell you how the listing states to make the EM payment. If you have decided to be an unrepresented Buyer or are using the Seller's agent, the Seller's agent will give you the EM instructions. (BUT PLEASE, consider the fact that as a Buyer, you don't pay for a Buyer's Agent's services and using one ENSURES your best interests are protected!! Not the case if you are unrepresented or using the Seller's agent... I have an upcoming post about this. Look for it soon if you want more details!!)
   
4. "When will it be deposited?"     It is deposited  once you are under Binding Agreement, which means all parties have come to an agreement regrding the price and terms of the transaction. (In other words, when the offer or counter-offer is accepted.)
   
5. "How will the money be applied" (connects to question #5)     If all goes well, and you end up closing on the house as you hoped and expected the money will be applied towards your total money owed. It will show up on your HUD Statement (the form required to be reviewed by all parties involved in a Real Estate transaction) as a credit, thereby reducing the total amount you will need to pay by that amount.
   
6. "Can I get my money back?"     Yes, you get the money back on two conditions: The first is upon closing, as stated above. The second is if you terminate the Purchase and Sale Agreement under acceptable terms, usually meaning during your Due Diligence Period. (More info on that in a later post.) If you back out of a deal after the Due Diligence Period has ended and the Seller feels they have been wronged, they have a rightful claim to your Earnest Money. In this case, it becomes the decision of the Broker holding the EM payment, which is why, if possible, it is preferable for your representing broker to hold the money. (But also why the Seller may require their Broker holds it.)
   
   That pretty much coveres the questions we hear most often about Earnest Money. Though I know you earnestly want to keep your money (or make the most of it), EM really is a good thing for all parties involved: Eases the seller's mind that the Buyer who is putting in an offer is capable of buying. It give you the Buyer credibilty and a little "money in the bank" when it comes to closing.
   
   If you have a question about Earnest Money that you did not see answered above, or questions about anything else Real Estate related, please let us know!  If we don't know the answer we will find it. We believe a well-informed Buyer is the Best Kind of Buyer!  (Well-Informed Buyers are confident, capable Buyers... the backbone of the Real Estate Industry.)
   
   
   
   
   
   
   
   
   
   And remember... you still have time to get your portion of Stimulus money with the First Time Home Buyer's Credit of up to $8,000!!! If you haven't owned a home in the past 3 years and you close on your new home by November 30 you will qualify!!! Please call or email us if you need more information about this program or have any other questions =)