If you recently went under contracts on a new home, chances are you were asked to deposit earnest money. But what is earnest money? Earnest money is a deposit made by the buyer that shows they have good faith in purchasing the home. The deposit amount can vary, but typically it is about 1-5% of the purchase price. The exact amount will be spelled out in the contract. For more info, click here.
We know you want to protect your hard-earned earnest money! While specifics are spelled out in the contract, here are the top four things that can cost you your earnest money.
1. Running out of time: When under contract, the seller can set a timeline for when things need to happen. This could be the home inspections or finalizing the terms of your mortgage loan. To protect your earnest money, be sure you meet the requirements laid out in your contract. Should you miss a deadline, the seller might be willing to give you extra time if something outside of your control kept you from meeting the deadline. If you don’t have a credible reason, the seller can cancel the deal, and you could lose your deposit.
2. Having a non-refundable deposit: When caught in a bidding war, it is
common to leverage the escrow deposit. Sometimes in a competitive market, the seller will leverage certain concessions out of prospective buyers. The seller could include a clause in the contract that says the earnest money deposit becomes non-refundable after a specific date. Accepting this clause can give you a competitive edge, but should the deal not work out, you will lose your deposit.
3. Sacrificing Contingencies: When going under contracts on a property, you agree to certain contingencies. Some are there to protect the seller, and some are there to protect the buyer. For example, the inspection and appraisal contingency allows the buyers to walk away if the home doesn’t pass the inspection or appraisal. One way to make your offer more competitive is to waive these contingencies. When you do that, you put your earnest money on the line because you cannot use those protections if you later decide not to buy the property.
4. Jumping Ship: While you may have loved the home you put an offer on there is always a chance you could change your mind. If you find yourself with cold feet and wanting to walk away, breaking the contract, the seller has every right to keep your earnest money. Keeping the earnest money helps them cover the costs of having the home off of the market and having to re-list.
Talk with your escrow officer and real estate agent if you have additional questions regarding your earnest money.
Pioneer Title Agency is a full service company with an operating philosophy of "Commitment to Service." The company provides title insurance, escrow, account servicing, trustee sales, as well as builder related trust services through more than 70 offices in Arizona.