Earnest Money ( Good Faith Deposit) Explained & How It Works In Real Estate
When it comes to buying a home, people ask quite often, what is earnest money? Well, that is what we will be talking about today, and we are going to get started right now!
Hey everyone. Welcome back to my channel. I’m Ledeana Strand with homes by strand, and RE/MAX town and country in Port Orchard WA. I post real estate related video’s every other Thursday, and if you want to stay up to date on what’s happening in the Kitsap County real estate market, and what it takes to buy or sell a home here locally, Consider subscribing by hitting that subscribe button down below, and hitting that little bell for notifications, so you don’t miss out on anything.
So what exactly is earnest money? When you are buying a house, you want to show the seller, that you are serious about purchasing their home, by putting down a good faith deposit. Because you are basically asking the seller to take their house off the market to give you time to get financing and to do inspections, etc. So, the seller will want to see that you have some skin in the game as well. That is what earnest money does. It’s essentially a good faith deposit. Now, It is not legally required in Washington state, but to be taken seriously by the sellers, and the market that we are in currently in Kitsap County, you do need a good faith deposit. Now let’s dive a little deeper.
Now don’t’ worry, earnest money is money that is refundable to you, If you cancel during your due diligence period. And if you don’t know what due diligence is, don’t worry, I will be explaining that in one of my future video’s. Part of that due diligence period, is allowing you to do all of your inspections, for example, a home inspection, neighborhood inspection, maybe you want to check out the schools. Any inspections that you feel are necessary to help you make an educated decision on whether this is the right home for you and your family. If you find anything that’s a deal breaker for you and you end up canceling, you can get your earnest money back. But if you remove your contingencies, you’ve done the appraisal, you’ve done your inspections, you’ve gotten the green light from your lender, you’re moving full steam ahead and then you cancel, the seller would then be entitled to keep your earnest money. Because you would basically be in breach of contract.
.Something else to keep in mind, is that the more money you put down as earnest money, the more serious you look to the sellers, and in multiple offer situations that we are in now, in our local area, can mean the difference between getting the house, or having the seller go with another offer that may have offered more earnest money. But at the same time, you want to also remember that the more money you put down, the more you stand to lose as well. So how much money should you put towards the earnest money deposit? There is no hard and fast rule on this, but typically we see around 1% of the purchase and sale price. So, if you are buying a 300,000 dollar home, that would be 3,000.00. Now don’t worry, your earnest money deposit is applied to your closing costs. So, if your lender said your closing costs are going to be $6,000 ,you’ve already put down a $1,000 then the cash to bring to the closing table would only be $5,000.
When I am working with buyer’s I have a process in place to make sure that my clients are never in breach of contract. I make sure that they want to move forward with the purchase, that we have gotten the go ahead from their lender, and that the property appraised for the offer price, that we also have been able to negotiate with the seller on the inspections, and that my buyer is happy and wants to move forward. If you decided to cancel after all of that, you would lose your earnest money. As a buyer, you want to make certain that you are 100% sure you want to move forward.
So hopefully you’re working with an agent that is going to be guiding you and letting you know of those time frames so that we never put that earnest money in jeopardy. The last thing we ever want to do is have you lose your earnest money. So, there are typically three contingencies when you’re buying a house and they are listed right here. The inspection contingency, meaning we are happy with the condition of the house and the financing contingency, Your lender said Yes, that they will give you the loan, and the appraisal contingency where the property has appraised for what you’ve offered to pay for it, if not higher. If you cancel during your due diligence period, you did your home inspection, You were not happy with what you found, you are entitled to get your earnest money back. Once you move past the due diligence period, and then you decide to cancel, the seller would be entitled to your earnest money deposit.
If the property does not appraise for the purchase price, and you are not able to come up with the difference, or re-negotiate with the seller, then you are entitled to get your earnest money back. But if you do all of those things and three days before closing, when everybody’s all set too close, you say, oops, another house came on the market down the street. We liked that one better. You’re probably going to lose your earnest money. So just those are some things to be aware of.
The next questions that people ask, is when does earnest money get deposited? Your earnest money, whether you write a check or you do a wire transfer, will need to be deposited usually within 1-3 days of mutual acceptance, or however it is stated in the purchase & sale agreement. If you are going to wire the money, it is extremely important that you speak directly with your escrow company to get the proper wiring instructions. So, now you know what earnest money is. If this is your first time buying a house, check this link right up here. I did a video on how to buy your first home, and I walk through the entire process step by step. If you have any questions, or if there is anything I can help you with, please don’t hesitate to ask. Even if you are not in Kitsap county, Wa. Shoot me a message, and I will see how I can be of service to you. If you liked this video, be sure to hit the thumbs up button and leave me a comment on what video’s you would like to see, And, don’t forget to subscribe to my channel by hitting that subscribe button, and I would love for you to join the community. Thank you for watching, and I will see you on the next one. Make it a great home buying and selling day! See you soon!