What is Earnest Money?
Earnest Money is a deposit that a buyer pays to show the seller of the home that he/she is serious about the purchase offer. It is simply a sum of money showing the purchaser's "good faith" in the contract. In today's market with homes flying out of inventory very quickly, your Earnest Money deposit is a way of showing the home seller that your are a serious buyer and have every intent on completing the transaction.
How Much Earnest Money do I need?
Earnest Money Deposits vary from State to State and City to City. In our market, you can see a range of $500 up to 5% of the purchase price. In very competitive markets, buyers and their buyer;s agent are writing higher Earnest Money into the contracts as a way to make their offer stand out in multiple offer situations. It is up to you and your Texas Realtor® to determine the amount of earnest money that you want to include with your offer.
When Do I pay the Earnest Money?
Once you have a fully executed contract, the Earnest Money check is due. It is payable to the agreed upon title company or attorney noted in the purchase agreement. This check will be deposited in the escrow account on your behalf, so you will want to make sure it is written on good funds. Failure to provide the earnest money check will cause buyer to be in default on the contract. This money is held until closing at which point it is credited to the buyer's closing costs.
Is Earnest Money Refundable?
Your real estate contract is a legal binding document with specific time lines and responsibilities for both the buyer and the seller.
A buyer risks losing their Earnest Money deposit when they don't comply with the contract terms and those sellers lose valuable time on the market.
Real Estate Contracts can terminate for many reasons such as when the buyer cannot get financing, the buyer decides to terminate after an unsatisfactory inspection, or buyer exercises the right to terminate during the option period as specified in the contract. In these instances a buyer most often gets the Earnest Money refunded.
Ideally, both buyer and seller will agree as to who gets the Earnest Money. Texas Real Estate Commission offers a one page form signed by both buyer and seller authorizing the title company or attorney in charge of the funds to release to the appropriate party.
Remember that the executed contract to purchase real estate is a legal binding document and there is a substantial amount of money on the line. In order to not take any chances of losing your earnest money deposit, discuss the contract requirements with your Texas Realtor® and/or your attorney.
As you prepare to meet with your agent, go home shopping and find that perfect home to make an offer on also be prepared to break out the checkbook and follow the contract to the letter! Happy house hunting and hire a buyer's agent!