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If you’re ready to make an offer to purchase a property and want to show the home seller that you’re committed, there’s a way to prove you’re serious about your offer. You can make a deposit that represents your good faith to buy; this payment is known as earnest money.
Earnest money is a security deposit in an amount agreed to in the real estate contract that you sign, paid as a show of good faith that you intend to purchase the property. (The amount is typically between 1% and 3% of the sale price, though it can be up to 10%–the exact sum depends on the market at the time of purchase.) Your earnest money payment is held in an escrow account until the purchase is complete; but once the deal closes, that money is usually credited toward your downpayment or closing costs.
THE IMPORTANCE OF BEING EARNEST
Earnest money is important because it protects both the buyer and the seller involved in the real estate deal. For buyers, the deposit might be refundable if contingencies in the contract go unmet. For instance, the buyer might be able to reclaim the earnest money if the property inspection reveals any defects or faults with different aspects outlined in the contract.
For sellers, the earnest money can be retained if the buyer decides not to go through with the purchase for contingencies not outlined in the signed real estate contract, or if the buyer fails to meet any deadlines laid out for fulfilling certain requirements of the purchase process as outlined in the contract. The buyer also must forfeit the earnest money deposit if they decide to pull out of the deal due to a change of heart.
SKIN IN THE GAME: DO YOU HAVE TO PAY EARNEST MONEY?
While earnest money is not always a requirement to purchase a property, it could be crucial to making a deal if the real estate market is particularly competitive. People tend to favor these good-faith payments because they understand that it directly involves them financially–because they have a vested interest, the earnest money deposit helps to ensure that the sale will not fall through. Earnest money functions as added insurance for both the buyer and the seller involved in the real estate deal.
If you are buying or selling a house or other property in the Texas Gulf Coast area, consulting a knowledgeable real estate agent can help you navigate the current market and understand your options. The Corpus Christi, Texas-based company WEICHERT, REALTORS® – The Place of Houses is the professional realty team to call. WEICHERT, REALTORS® – The Place of Houses employs experienced real estate specialists who will offer exceptional guidance and support to you as their client. Contact WEICHERT, REALTORS® – The Place of Houses so the expert real estate group can assist you as you go through the process of buying or selling property in Corpus Christi or the surrounding area.