Why the need for Earnest Money anyway?
Earnest money is given by a home buyer at the time the offer is made - this shows the seller the buyer is "earnest" or sincere about the offer they are making.
So, how sincere do you want to think the seller you are? Once your offer is accepted, you now have a binding contract. Your check is cashed and deposited into the escrow account indicated on your contract. (Beware: It may not be your agent's brokerage escrow account!)
The problem with earnest money is that each state has very specific real estate license laws about how and when earnest money can be removed from an escrow account once it is deposited. IF you close on your purchase, the earnest money will be credited to you at closing. No problem, right? But, what happens if you don't' like the home inspection, or just change your mind? You could lose your earnest money. The purchase contract should stipulate what happens to your money if you do not purchase the property. In most cases, if your loan is not approved, your earnest money is returned to you.
In Kentucky, the broker holding the earnest money can make a decision about what happens to the earnest money, should a transaction go South and the buyer and seller cannot agree. For this reason alone, buyers should make sure the contract says the earnest money will be deposited into the escrow account of their agent's company.
How much is enough? As a buyer's agent, I would say as little as possible. Remember, this money will be tied up until closing. Put as little money at risk as the seller will accept. If the seller doesn't like the amount of earnest money you offer, they will counter offer. You can't get if you don't ask!
Comments(2)