If you’ve never been through the home-buying process, some of the terminology can be overewhelming. One of the many phrases you might come across is “earnest money”. This can sometimes be called “escrow money”, or “good faith deposit”. Either way, it’s something you are near guaranteed to hear. But what is it, anyway?
When making an offer on a home, it is generally expected that you will offer some kind of good faith deposit either along with the offer, or within a certain number of business days upon acceptance. Some states require a particular percentage of the purchase price of the home. Here in Florida, I see anywhere from $500 to $5,000 and more! Generally here, if you are a cash buyer you typically offer more in the way of a good faith deposit to show that you are serious, where if you are purchasing as a first time home buyer, you tend to offer somewhere between the $500-$1,000 range, normally because you will only be bringing 3.5% to the closing table for your total downpayment. (This deposit is refundable up until a certain point, and is applied to your total amount due at closing!) But how is that money used – and where does it go between day 1 and closing day?
When you make that payment, either by cashier’s check or through bank wire, that earnest money will be directed towards any closing costs, down payments, or other items you would typically pay out of pocket. A lot of buyer’s think that this money goes directly to the seller as a sort of enticement to accept your offer. No! it is held by a neutral party until closing day, and then applied directly to your out of pocket expenses.
I did mention that this deposit – here in the state of Florida – is protected, through a good portion of the contract process. This is true! A good realtor understands the intricacies of a purchase contract, and how to use them to protect you AND your investment. Likewise, an even better realtor understands when that deposit could be in jeopardy! That’s just one more reason why it is SO very important to ask questions before hiring your agent. It isn’t just the listing agent tasked with protecting thousands of dollars, after all. Make your realtor work for that commission!
As always, if you feel unprotected, or have any questions at all, I am always happy to help any way I can. Buying a home is an important and often stressful milestone. Work with someone that understands the faith you’re placing in them, to get you to your goals. Work with Rose Tree Realty!