Everything is going great with your home search and you think you have found ‘The One’. You go to write the offer and your real estate agent then asks you for a check. “Wait, what? Today? Now?” you say. Your real estate agent smiles politely and says, “How about $1000? Is that do-able?” After you collect your bottom jaw from the floor, you say, “For what?” Your agent gives you an exasperated look and says, “Earnest money, of course!” Trusting in your agent, you scribble out the check and hand it over with no idea where it’s going or if you have just been had to the tune of $1000.00.
Naturally, a Carter & Roque Real Estate Realtor® or any other true real estate professional would have already talked with you about an earnest money deposit. They would have explained what it is for, why you need it and what happens to it. You mean your agent didn’t fully explain earnest money?
The word ‘earnest’ means sincere or serious and earnest money is just that; it is “good faith money’ that you are putting in a serious offer to see this contract of sale through to fruition. Basically you’re showing the sellers you are ready, willing and able to buy their house.
Why would someone need to include earnest money in their offer? There are a couple reasons:
- It lets the seller know that you don’t have several offers on homes around town, intending to ‘cherry pick’ the one that you like best.
- Perhaps there are several similar offers being presented on this home and your “genuine intention” to purchase this property might sway the sellers to accept your offer instead of another.
- It also shows the seller that you have the funds readily available to pay for closing costs and other fees.
Once you give the earnest money to your Realtor®, it is held in an “escrow” account until closing; when that amount is usually applied to the down payment of the home or closing costs. During this waiting period, the earnest money is in limbo. Technically, it neither belongs to you, the bank or the seller and that is why a third party handles it.
In our market, the earnest money amount can be anywhere from $100 to 5% of the price of the property. Make sure you do not include more money than requested in your earnest money check. If something should happen and the home is unable to be sold, the earnest money is usually returned to you. However, if you should breach the sales contract, suddenly decide not to buy the home or there is a clause in the contract, this money may be forfeited to the sellers to compensate for time and money lost.
Ask your real estate agent if you have questions about earnest money, or better yet, hire a Carter & Roque Realtor® in the first place. 301-759-0100.