What is earnest money and how does it operate in a transaction? Today Jen joins me to discuss the topic.
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Jen has accepted many earnest money checks over the years—but what is earnest money, and why is it important?
Earnest money is a very important part of any transaction; not only does it tell the seller that you, as a buyer, are serious about the transaction, but it also goes toward the down payment you’re making on the loan.
One thing that buyers don’t realize when it comes to earnest money is that it also assists them by locking the seller into the transaction. Yes, under contract, the buyer will face consequences for breaking the contract, but if the seller breaks it, they’re bound to not only refund the earnest money to the buyer, but to give the buyer a sum equal to the earnest money as liquidated damages.
Considering that, how much money should someone put down when they’re purchasing a home? A good rule of thumb is 1% to 2% of the purchase price, but the decision is ultimately part of the negotiation process. In a buyer’s market like the one we’re currently in, it’s a good negotiation tool to get offers accepted and to ensure the transaction makes it to close.
If the seller breaks the contract, they’re bound to not only refund the earnest money to the buyer, but to give the buyer a sum equal to the earnest money as liquidated damages.
But when does one pay earnest money, and who holds it? In the state of Utah, the earnest money deposit is paid within four days of acceptance. The money can either be held in escrow at a title company or it can be held in the broker’s trust account.
Many buyers ask if they can get their deposit back if things don’t go right. The simple answer is yes; when you write a contract, there are very specific circumstances under which you’ll be able to get the deposit back. For example, during your due diligence period when you’re looking at whether or not you want to purchase the home, there are dates that specifically designate a time by which you have to counsel—if that is done, then the earnest money is returned.
It’s the job of a real estate professional to understand the complexities of how earnest money deposits work, so if you’re thinking about buying or selling a home, reach out to us. We’d love to answer any questions you have.