Ask Cary Real Estate: What’s the difference between a Builders Deposit and Earnest Money? How do they effect the Home Buyer? Cary home buyers offer earnest money on a re-sale home and a builders deposit on most new construction. Here’s a quick overview of the similarities and differences between a builders deposit and earnest money.
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David: Much of what you have written is true, but some things vary from state to state, and of course, from area to area and builder to builder. Here in the Fort Worth market I have rarely seen a builder require as much as 5% to 10% of the sales price. In this area... that is unheard of. Some builders will take as little as $1,000 as "builder deposit" or "earnest money..." same thing here.
As far as risk is concerned... earnest money, by definition, implies that the buyer is "earnest" or serious about entering into a purchase agreement. If they default... they have broken the contract, and the earnest money SHOULD usually be counted as part of liquidated damages... and go to the seller.
Karen - thanks for stopping by -
of course real estate varies from area / state etc - that's why i referenced my market area of Cary NC and your comment of 'much of what i have written is true' implies that I have some info which is false - i would disagree and I stand by my post.
Yes earnest money is at risk on a resale home if the buyer defaults and the seller would be entitled to the money as damages but on the other side of the scale our purchase agreements provide mutliple scenarios where the buyer would be entitled to a refund - unlike the builder deposit which is usually non refundable and goes immediatley into the builders operating account. In our market the higher builder deposits are tied to local custom builders that are constructing a pre-sale home for a specific buyer - if it's new construction that's finished it's a different story on the amount etc
thanks again for stopping by
Hi David, I agree with all that you have written, but of course I'm from this area.
It's especially risky these days to give a large amount to a builder if you see that the community doesn't have much construction going on. Builders are going bankrupt without giving the "buyers" back their large amount of "deposits", as one infamous builder in Apex did a few years ago. Some people were out over $70,000.! Earnest money is held in a TRUST account- not in a builders checking account!
David: I did not mean that some of your information was "false"... in the negative way that you have taken it. I was just saying that all of the points that you were trying to make did not apply in ALL areas of the country.
And Linda... for a buyer to give a builder a $70,000 earnest money... would also rarely if ever happen here. But... just about every builder I know in the Fort Worth/Dallas area... ENCOURAGES their buyers to have a Realtor represent them.
As far as the $70,000 earnest money to a builder is concerned... here is an example. IF... a buyer contracts with a builder to build a home for them from scratch... and selects many options to be put in that home that the builder would not normally do... I don't know a builder in the world who would even start that home... without that buyer having to give the builder at least HALF the cost of those options in advance... as additional and non-refundable earnest money... that would be paid directly to the builder.
Yes, I am a Realtor... but IF I were a builder, and my buyer wanted the options I described above... I wouldn't start the home UNLESS I had that non-refundable earnest money I mentioned. Things must really vary quite a bit from state to state and area to area.
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