🏠{Real Estate} Market Monday
Question: What is Earnest Money?💵
As a Home Buyer, once your contract has been accepted by the Seller, Earnest Money is {almost always} required as a good faith deposit for the contract within 3-5 days.
Typically, Earnest Money is 1% of the sales price of the property, but the Seller can request more or less (often Builders require significantly more for new construction), and this is negotiated within the offer. It can be paid to/held by the Closing Attorney, the Builder, or the Brokerage for either the Buyer's Agent or Seller's Agent.
If all goes well, this Earnest Money is applied as a credit to the Buyer at closing. So it's not gone forever- it gets credited right back to you when you close!
However.... if the contract does NOT close, the Earnest Money is at risk of going to the Seller.... unless.... it is protected by due diligence or a contingency:
1) Due Diligence: While negotiable, most re-sale contracts allow for a Due Diligence period. During this time, a Buyer can back out of the contract for any reason and receive a refund of their Earnest Money.
2) Financing Contingency: While negotiable, most re-sale contracts allow for a Financing Contingency period. If, during this time, the lender determines the Buyer cannot qualify for financing, the Buyer is eligible to receive a refund of their Earnest Money (though some stipulations are thrown in there, too).
3) Appraisal Contingency: While negotiable, most re-sale contracts allow for an Appraisal Contingency. If, during this time, the appraisal comes in below sales price and the Buyers & Sellers are unable to come to an agreement, the Buyer is eligible to receive a refund of their Earnest Money.
4) Home Sale Contingency: If included in the contract (often if the Buyer must sell their home in order to purchase a new home), a Home Sale Contingency protects the Buyer's Earnest Money in the event their current home does not sell. Dates/length of contingency & kick-outs vary depending on how the Contingency is written, so this would need to be discussed with the Buyer's Agent in full.
Note that most Builders of new construction homes have their contracts written so as to not allow most of these contingencies. This varies by Builder, so it's important to review the Builder's contract in full to determine how/if your Earnest Money is protected.
Have questions about what this means for you in your buying journey? Let's chat!