Kari McCoy's Real Estate Articles
EARNEST MONEY DEPOSIT
Once the buyer has found their dream they wish to own the next step is to create a purchase agreement in writing. This purchase agreement sets forth the terms and condition of the sale of the agreed upon real estate between buyer and seller.
The purchase agreement and the earnest money check are submitted to the Seller.
The earnest money check is a financial pledge from the buyer that they will make a diligent effort to fulfill the terms of the purchase contract.
The amount of the earnest deposit money is negotiable and may vary with market conditions. For example, if the seller of the property is drawing multiple offers, they may want a higher earnest money deposit. The amount of your earnest money deposit shows how serious you are about the purchase of the property. A large earnest money deposit my impress a seller enough so they will accept your offer instead of someone else’s or it may convince a seller to accept a lower purchase price. Your local real estate professional will be able to help you determine the appropriate amount of your earnest money check.
Once the purchase agreement is accepted by the Seller the earnest money is then deposited right away into a trust account.
The agreed upon purchase contract determines where the earnest monies will stay until the transfer of title from Seller to Buyer.
The earnest money can be held by any person or entity, mutually agreed to in the purchase contract. Typically it is held with a neutral third party such as a title/escrow company or a real estate brokers trust account. This way neither seller nor buyer has access to the earnest money. While the deposit money is held in the trust account with the title/escrow company it does not earn interest. However, if you wish to obtain interest you must give the title/escrow company written instructions to create an interest bearing account.
Please note once the earnest money check is deposited it belongs jointly to the buyer and seller.
Almost all transactions close and the earnest money funds are applied to the buyer’s down payment and closing costs.
There are little those exceptions with a small amount of cancellations of purchase contracts.
Usually if something goes wrong early in the deal the seller understands and the earnest money is returned to the seller immediately.
There maybe small cancellations fees that are owed, which would be taken out of the earnest money first and then the balance returned to the buyer.
Before any money can be released the trust account holder must have mutual written instructions from all buyers and sellers involved in the transaction.
In short, this means that if a conflict does occur either party can hold up the process and the earnest money deposit. If this happens the person or escrow/title company holding the earnest money must continue to hold the money in trust until the buyer and seller agree in writing to mutual terms of its use or until a court order is issued.
Either party may file in small claims court (depending on the amount of earnest money) or the parties may jointly agree to have the dispute heard by a panel of Arbitrators.
Serious problems really occur and are the exception.
Most challenges are routing to your professional real estate agent. They may be new to you, but the agent may have dealt with it many times in the past. If you have a questions contact your local Professional real estate agent or your local attorney.
Copyright© 2006 Kari McCoy
Kari McCoy is a resident of El Dorado Hills and owns the Kari McCoy Group, Residential Real Estate, at Coldwell Banker. Call her at (916) 933-KARI (5274), e-mail her at sold@karimccoygroup.com or visit www.KariMcCoyGroup.com.