You include earnest money with an offer on a house to show the seller that the you are serious about purchasing the house. It becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if you pull out of the deal for reasons other than those stipulated in the offer. A financing contingency is an example of the latter - if your offer was contingent on getting a loan, and you can't, you can cancel the contract and get your earnest money deposit back.
Just How Much Earnest Money?
The size of the down payment down payment depends on you. Brokers will certainly in some cases outright lie, and inform you it is this or that dollar amount, or this or that percent of the offering price. In truth, you could create the deal with a $1 down payment if you want to, and the agent still has to represent you.
Normally, a deal with a $1 down payment could not be taken seriously, and the broker could also convince the seller to turn down your deal. It is a great idea to ask what the standard is. For instance if you purchased a residence in Texas, and the broker informed you that a $5,000 down payment was typical, you could still certainly offer a down payment of merely $1,000. That is sufficient to get the deal going.
You could likewise do a two-part down payment. You could make a deal with merely $100 in earnest cash, for instance, however point out in the deal that this will certainly be increased to $2,000 once the deal is approved, or once an inspection, appraisal or other contingency is met. This keeps your cash from being tied up until you understand that the homeowner is serious about selling to you. This will usually still be seen as a serious offer if the deposit is to be increased at some point.
Who Gets The Earnest Money Deposit?
Never ever provide your earnest money check to the seller. The last thing you want is a seller attempting to keep your cash after you take out of an offer as a result of financial issues, termite infestations or various other legitimate emergencies in your deal. If the real estate office taking care of the offer has an escrow account, it should be safe to make the check out to the broker. Otherwise, use a title company or other escrow account, but in any case, always give your deposit to a third party to hold.
Ask exactly how they manage it as well. You may have an offer rejected, and then have to wait a week to get your money back. You will have to wait for the check to clear before they can issue a check back to you. We would suggest that your 3rd part escrow just hold the check until the offer is accepted, and return or destroy it if the offer is rejected.
How You Can Protect Yourself?
Things can happen, right? If you pull out of the deal for some unforeseen reason - one not included in the contract - you'll lose your deposit. However, the seller could also sue you for additional damages or even force you to buy the home. To protect yourself, have a clause in the offer that specifies the earnest money as "liquidated damages" if you are in default. The real estate agent can help with the language, but this basically means that if you need to default on the contract, the seller can't ask for more than what you have already included as earnest money.
If you are interested in purchasing a home in Myrtle Beach or on the coast of South Carolina and have any questions about earnest money or other real estate questions, feel free to contact Dargan Real Estate.