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4 Basic Facts About Earnest Money
WooHoo!!! You've just gone under contract on your dream home (Congratulations by the way), but now your Realtor is bugging you about the "Earnest Money" or "Earnest Deposit" to open the file at Title. If you are working with an established agent they have probably already explained that they are going to be requesting this from you either before or right after you make an offer on a home. But, if you are working with someone that does Real Estate Part-Time or just for friends/family, they may have skipped this section in their early conversations with you.
SO? WHAT IS EARNEST MONEY AND WHERE DOES IT GET DEPOSITED?
Earnest Money are the funds that a Buyer uses to secure a property after going under contract on a home. These funds are generally either $1,000 - $3,000 or 1% of the Purchase Price. In the State of Arizona it is common to deliver the Earnest Money to the Title Company where the file is being opened. Generally the Buyers Realtor will supply a Fully Executed Contract and the Earnest Money (Funds) to the Title Company within 24 hours of going under contract on a home. The title Company will hold the funds in their account till closing.
HOW ARE THESE FUNDS USED?
This money is applied to your purchase at Closing. For example; If your total down payment on a home is $10,000 and your Earnest Money is $2,000 - at the time in which you are ready to close on your home the Escrow Officer will ask you to bring in the balance of the proceeds for your closing. Since you have already deposited $2,000 in Earnest Money, you will just need to bring the balance of $8,000 to satisfy the Buyers Funds to Close.
CAN I LOSE MY EARNEST MONEY?
It is rare that a Buyer will lose their Earnest Money. Typically the only time you would lose the Earnest Money is if you failed to close on the property you were Buying within the time frame allocated by the contract and you and the Seller were not able to come to an extension or agreement.
IF I DIDN'T BUY THE PROPERTY, DO I EVER GET IT BACK?
If for some reason you need to cancel the contract due to a poor inspection or the home does not appraise, you as the Buyer have the right to receive your Earnest Money back in total. There are cases where the Buyer and Seller may get into a disagreement over who is owed the Earnest Money at certain times in the transaction, so it is always advised to work with a professional Realtor to ensure your money is safe.
I hope this clarifies some of the basic reasons behind the Earnest Money, Earnest Funds and Earnest Deposit - but if you have any additional questions, please feel free to contact me directly and I am always happy to help.