Why would a seller request earnest money 4 months before house is finished?

Asked by Shrinn, Portland, OR Tue Jan 31, 2012

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Jeanne Feenick’s answer
Jeanne Feeni…, Agent, Basking Ridge, NJ
Wed Feb 1, 2012
Hi Shrinn, loads of good advice so far - I would amplify the suggestion to be sure you understand the payment schedule for new construction. Generally, a builder will have a specific formula, earnest money upfront is customary for new construction and resales and as others have said, it confirms your "earnest" and serious intent. Then with new construction there will usually be infusions of cash along the way as the project progresses, framing, and as choices are made. And there likely is a point that your deposit monies may be at risk, in part or in whole, so be sure you are working with resources - agent and attorney - that can clarify the specific process for the home you are considering/buying/building for you.

Good luck and best,
Jeanne Feenick
Unwavering Commitment to Service, Unsurpassed Results
0 votes
Jeanne Feeni…, Agent, Basking Ridge, NJ
Wed Feb 1, 2012
Hi Shrinn, loads of good advice so far - I would amplify the suggestion to be sure you understand the payment schedule for new construction. Generally, a builder will have a specific formula, earnest money upfront is customary for new construction and resales and as others have said, it confirms your "earnest" and serious intent. Then with new construction there will usually be infusions of cash along the way as the project progresses, framing, and as choices are made. And there likely is a point that your deposit monies may be at risk, in part or in whole, so be sure you are working with resources - agent and attorney - that can clarify the specific process for the home you are considering/buying/building for you.

Good luck and best,
Jeanne Feenick
Unwavering Commitment to Service, Unsurpassed Results
0 votes
Scott Godzyk, Agent, Manchester, NH
Wed Feb 1, 2012
An earnest money deposit is what ratifies teh purchase agreement, you give a deposit in good faith and continue teh buying process by obtaining a mortgage. The seller if a builder agrees to complete the home to the specifications agreed in your purchase agreement. Normal deposits are 1% of the purchase price, in new construction if you have a lot of extra or upgrades it is common for builders to ask for higher deposits to cover the cost and insure you will not walk away.
Web Reference:  http://www.ScottSellsNH.com
0 votes
Joe & Liz Ed…, Agent, Beaverton, OR
Tue Jan 31, 2012
The earnest money by definition is showing you are entering into the contract with "good faith" or in other words you are being "earnest" in your decision to purchase a particular property. Earnest money can be negotiated however if it is usually not a commonly negotiated item in new construction (or generally ever successful). If the builder or contractor is making special changes or catering to specific wishes and desires of a particular buyer they will more than likely ensure the security deposit covers any costs incurred if you "change your mind" and decide not too move forward. Make sure you cover your basis and make sure you are COMPLETELY aware at what point(s) deposit becomes non-refundable. Good luck Shrinn...I hope it goes well for you
0 votes
Marge Bare, Agent, Portland, OR
Tue Jan 31, 2012
Any real estate contract agreement to purchase, must include "consideration" which is known as "earnest money". You can imagine, a seller doesn't want to stop marketing his home or assume something is sold without a financial commitment by a proposed purchaser. Even more important, it's a legal requirement. Obviously in the case of new construction, it would be normal for it to be this far in advance.
That earnest money deposit can be in any form a buyer and seller agree to, so it's "negotiable". Any legal contract should not be entered into unless you understand exactly what your options, requirements and the expectations are, and you should seek competent advice.
Best to you
Marge
Web Reference:  http://www.betterhomesnw.com
0 votes
VM, , 80003
Tue Jan 31, 2012
Earnest Money is money you put down to show that you are serious and binds you to the contract, should you pull out for a reason that does not comply with the terms of the purchase contract, you void your earnest money. If you are putting an offer down on a property that is 4 months from being finished, the seller needs to make sure you are committed to the deal. This is definitely a question to ask your agent because I am sure there are more specific details pertaining to this contract but earnest money is a normal in real estate transactions.
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