By: Robert A. Hulme - Realtor - Loan Officer -Utah County, Including Provo, Orem, Pleasant Grove, American Fork, Lehi, Highland, Alpine and Cedar Hills, Eagle Mountain, Payson, Saratoga Springs, Spanish Fork, Springville, Mortgage Xpress, Agent
The Real Estate Purchase Contract involves more than just price. You will have to discuss personal property possession, rent, tests, inspections, closing dates and more. The one term that throws most buyers, especially first time buyers is Earnest Money Deposit. What is it? Why do I need to pay it? Why do I have to pay so much?
Not the Down Payment
Many buyers show up to write their offer and announce to their agent that they do not have to put an earnest money deposit because they are getting down payment assistance or 100 percent financing. Communication is very important, it is not difficult to see where an inexperienced buyer would confuse one deposit for another, so do not feel bad if you, too, just learned something new.
Returned at Closing
Unlike the down payment, the earnest money is returned at closing. Whether you actually get the cash back or have it applied toward your closing costs depends on the situation. Once you submit your earnest money it is held in a non interest bearing account until closing. The purpose of earnest money is provide insurance to the seller that once he starts to take action toward closing, for himself or for the buyer, that the buyer will not lose interest and walk away from the sale. If the buyer does walk without good reason, the seller gets to keep the earnest money, to help offset any expenses the seller may have incurred meeting the buyer's terms, as well as any inconvenience.
Earnest Money can be Negotiated
Just like the sales price the earnest money can be negotiated. The seller would like to see as much earnest money as possible before putting his home under contract. If multiple offer situations, sometimes, the offer with the larger amount of earnest money is more acceptable to the seller. So it is important to give a full deposit when you can.
Everyone thinks that the primary concern is the dollar, but when it comes right down to it, a successful transaction with minimal drama is what everyone really wants. A buyer who is not serious, is a buyer who could walk away a week before closing and no seller wants that. When you find your dream house, make your offer stand out and leave no question as to your seriousness if you want the best chance of receiving an acceptance.