First-time homebuyers and those that haven't purchased a home for many years are often surprised at how important earnest money in negotiating the purchase or sale of a home. What changed is the prices of today's homes and the old saying give us a thousand dollars and see you at closing is really outdated. Would you take a home you've been actively marketing for ninety days off market for four hundred thousand dollars, for a thousand? No, and you shouldn't. Here are the ins and outs of earnest money and a couple of related experiences.
-Earnest money deposit: The money given to the seller at the time the offer is made as a sign of the buyerâ€™s good faith.
-Earnest money amounts vary, but here are some guidelines. 5-10% of contract price is typical. Flat amounts like $5,00 or $10,000 also work.
-Most states require that real estate brokerages now pay interest on earnest monies over a certain amount, here it's $5,000. You will have to fill out a W-9 though to receive interest. Brokers can't co-mingle earnest monies funds with their business, it needs to go into an escrow account.
-Escrow accounts. Require all deposits you make go into an escrow account. Research state brokerage laws to discover what regulations brokerages must follow with buyers funds.
-All earnest money checks should be made out to a real estate brokerage, not a person.
-Require that you receive a receipt for all earnest monies delivered to a real estate agent or brokerage. This should include a copy of the check on the brokerage letterhead and a signature of person accepting delivery, date and location check was received.
-If the earnest money system is a two-step, with an initial deposit and than a balance, make sure the second one is not delivered until after the attorney and inspection approval period have come to a successful conclusion.
-A quick closing date requires certified checks for earnest money. Many a delay in closing has occurred when buyers earnest money checks bounced. If you're closing soon, utilize certified funds.