What are the guidelines for earnest money?

Asked by Rachel Weeks, Redlands, CA Thu May 22, 2008

I have been asked to provide a "paper trail" for the earnest money I provided and Countrywide rejected my paper trail. Where do I go from here???

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Sean Giorgia…, , 92553
Thu May 22, 2008
Earnest money is required in CA in order for the purchase contract to be valid. As little as one dollar is sufficient ... a seller, however, will usually ask for more. Keep in mind, your earnest money demonstrates to the seller your willingness to finalize a purchase.

Earnest money SHOULD NOT be confused with down payment!

Whatever amount you choose to offer, beware that it is at risk if you do not perform per the requirements of your escrow. Typically you have 10 to 17 days to get your loan, appraisal, and inspections handled.

Be ALERT when buying a bank owned home. They will have you sign a contract that is stacked heavily in their favor. Usually, they will ask that your earnest money be considered "liquidated damages" if you do not perform for ANY reason. That means they get to keep the money. They will also oftentimes ask that your earnest money AUTOMATICALLY be forfeited after a certain number of days, whether you complete the purchase or not.

Some other considerations:
* Never give earnest money directly to the seller
* Always make the check payable to a reputable third party
* Verify that the funds will be deposited into a trust account
* Get a receipt
* Always be aware of the timeline for canceling the agreement without risking your earnest money

Thanks for the opportunity to answer your question and compete for your business. You can reach me directly at 951-571-9229 or sean.giorgianni@gmail.com.
Web Reference:  http://frclsrtv.com
1 vote
Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Thu May 22, 2008
Guidelines for earnest money paper trails tend to be different for each lender. Ask Countrywide what they want and then do it. Usually, if it is a gift, they want a gift letter, copy of the cancelled check for the gift (which you have to get from the gift giver) and proof it was deposited into your bank account. If the money came from you, they want to see a bank statement, prior to writing the check, with sufficient funds to cover the check, a copy of the cancelled check, and a bank statement showing the check clearing your account.

Hope this helps. If the source was other than these, please feel free to contact me directly and I will see if I can help you out.
1 vote
Pablo Gonzal…, Agent, Cathedral City, CA
Fri May 30, 2008
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 buyer’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.
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