Earnest money deposit tip:

Although there is no set amount that you should put down on earnest deposit, you should think carefully about the amount you put down and understand what it means and what happens to that money if the contract is not followed by you.

The usual amount varies between 1to 3% of the sales price.  Keep in mind the 3% is usually the maximum due to the California liquidated damages clause in the CAR forms.

I usually get a copy of the deposit check (works with Short Sale and REO purchases) and put it with the offer.  I tell my buyers to make the check out to the title company that they want the escrow to be handled at.  The title company is usually one that I often work with - unless it is a REO property where the bank has stated who the title company has to be.  I put in the section of what amount of earnest deposit:

• UPON LENDER APPROVAL - if a Short Sale
• UPON BANK APPROVAL - if a REO purchase

I send that copy with the offer.  After either Lender approval or Bank approval, I then ask the buyer to either give the check to me for me to take to the title company or for them to hand deliver it to the title company and in either case they get a receipt for the deposit.  The deposit should:

• Never be given to the seller under any circumstances
• Be made out to the title company and notation of the escrow number and / or property address

I encourage my buyers and sellers to read the contract in which there is an explanation of earnest deposit.   

If for some reason there is a cancellation of the transaction, there are special forms that come from title on instructions to cancel and it will either state that the buyer get the deposit back or that all or part of it goes to the seller for some reason.  I encourage the buyers to make sure they read this cancellation form first before signing.

The earnest deposit is expected on all sales and it is a way of showing the seller that the buyer is serious about the purchase.  It is not money that is owed to the seller, this is why it is important to read the contract and ask questions if you do not understand this deposit.

REO tip: This is especially true with REO purchases.  The bank is very careful about how they word their contract regarding the earnest money.  There are ways there that you can actually lose that money by not following the contingency dates and other dates set in the contract.  Read it carefully.  Ask your agent and do not let a date slip by.  It could cost you your earnest deposit.

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Check out: Real Estate Terms/Definitions.  And take a look at Mother and Daughter Blog and D'Adrea's Mother and Daughter Blog  - for other tips for Sellers and Buyers. I work with my daughter as the Mother and Daughter Real Estate Team at Perfect Financial Solutions and we also focus in Short Sales and the Pre-Foreclosure process.  Our consultations are free.  Our aggressive marketing plan includes on-line listing advertising.  If you are thinking of selling or buying a home in Northern California's Central Valley (San Joaquin County CA - includes Stockton, Manteca, Tracy, Lathrop) plus Stanislaus County CA - includes Modesto, Salida, Riverbank) & the East Bay (Alameda County CA - includes Hayward, Fremont, Newark, Union City & Oakland) and surrounding areas give us a call.  If you would like a FREE Home Seller or Home Buyer Handbook, please call us at 866-750-8282 or email at US.

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