Earnest Money Deposit Check: What You Need to Know Before Buying a Home

An earnest money deposit check is a crucial part of the home buying process, typically ranging from 1% to 3% of the purchase price.

You'll usually write the check when making an offer on a home, and it's considered a commitment to purchasing the property. The deposit will be applied to your down payment or closing costs.

The check should be made out to the seller or their agent, and it's essential to keep a copy for your records.

Earnest money is a deposit made to a seller that represents a buyer's good faith to make a purchase. It's essentially a deposit on a home, an escrow deposit, or good faith money.

The deposit amount can vary, but it's typically a small percentage of the purchase price. Buyers submit earnest money with an offer to buy a property.

A neutral third party holds the earnest money in an escrow account until the real estate transaction closes. If the deal closes as planned, the earnest money goes towards the down payment.

Earnest money demonstrates the buyer's intent to purchase an offered property. It's a way for a real estate buyer to secure a contract with a seller.

In some states, there are regulations on the maximum earnest money deposit. For example, in California, the maximum risk a buyer faces is three percent of the purchase price.

Earnest money is a sum of upfront cash that shows a buyer's seriousness about purchasing a property. It's usually a percentage of the home purchase price, typically around 3% to 5%.

You'll need to have liquid funds available to hand over the earnest money check within one to two days of the seller accepting your offer. This is why it's good to have cash on hand before making an offer.

The earnest money check is usually paid by certified check, personal check, or wire transfer into an escrow account. This account is held by a real estate brokerage, legal firm, or title company until closing.

The funds in the escrow account can earn interest, and if it's more than $600, the buyer must fill out tax form W-9 with the IRS to receive the interest.

Here's a breakdown of the typical earnest money payment process:

It's essential to note that different jurisdictions may have different legal circumstances around earnest money. For example, Washington state legislature has slightly different definitions than Minnesota statutes.

Earnest money deposit checks can be a crucial part of the home buying process, but what happens to the money if the deal falls through? In most cases, the buyer gets their earnest money back, but there are certain conditions that must be met.

The buyer's earnest money may or may not be refundable, depending on the reason the sale was canceled. If the home or seller doesn't meet the agreements outlined in the purchase agreement, the buyer can get their earnest money back.

Here are some common contingencies that allow buyers to keep their earnest deposits:

• Appraisal contingency: When a home appraisal yields a lower valuation than the agreed purchase price, a buyer can either back out of the deal or negotiate a lower price point.

• Inspection contingency: Buyers can make the sale contingent on a home inspection that does not reveal expensive-to-fix defects.

• Financing contingency: A buyer's offer can be dependent on qualifying for financing.

• Existing home sale contingency: When the buyer needs to sell their current home to help finance the purchase of a new one.

If the buyer fails to comply with the agreement, the seller may be entitled to receive some or all earnest deposit funds. The seller gets to keep the earnest money if the buyer decides not to go through with the home purchase for reasons not specified as part of the contract.

Here's a breakdown of the conditions under which the seller may retain the earnest money:

• If the buyer simply has a change of heart and decides not to buy the property.

• If the buyer fails to meet the deadlines agreed to with the seller.

• If the buyer fails to comply with the terms of the contract.

It's essential to carefully review the purchase agreement with an attorney or an experienced real estate agent to understand your rights and obligations as a buyer before paying the earnest money.

Real estate licensees can be held liable if they fail to advise buyers to hold off on waiving contingencies. This can lead to buyers losing their earnest money deposit and filing a claim against their real estate licensee.

To avoid this, sellers' agents should inform buyers in writing to consult an attorney before signing off on waiving any contingencies. This is a crucial step in protecting the buyer's interests.

If a buyer doesn't close, the listing agent needs to send a "demand to perform with respect to cancellation of contingencies" in writing to the selling agent. This must be signed and dated by the buyer and returned to the listing agent.

Buyers' agents can also take steps to protect their clients by advising them to hold their earnest money deposit in a third-party escrow account. This ensures that the funds are held impartially and can be released if the buyer is entitled to a refund.

A reputable third-party company, such as a well-known real estate brokerage, escrow company, title company, or legal firm, should be used to hold the earnest money deposit. The buyer should verify that the funds will be held in an escrow account and obtain a receipt.

Here are some key steps to take to protect your earnest money deposit:

In California, the escrow company typically holds a buyer's earnest money deposit, not the selling or listing agent.

The listing agent is entitled to one-half of the forfeited amount after escrow fees and other costs are paid for the cancelled escrow, according to the C.A.R. Residential Listing Agreement (RLA).

If a buyer waives all contingencies and is unable to close escrow, the seller and listing agent will receive the earnest money deposit after the contract is cancelled and all parties have signed the cancellation.

A buyer may forfeit their earnest money deposit if they cannot close escrow due to reasons such as an inability to get a loan or a change of heart.

To avoid forfeiting their earnest money deposit, a buyer should not waive contingencies in writing until the time period stated in the purchase agreement has expired.

If a buyer doesn't waive contingencies in writing within the time period stated in the purchase agreement, and the buyer does not or cannot respond to the demand to perform, the listing agent must send the buyer's agent a cancellation of the contract, signed and dated by the seller.

The earnest money deposit will be returned to the buyer and the contract will be deemed rescinded once the buyer has signed the cancellation and returned it to the listing agent.

Here's a summary of the steps involved in forfeiting an earnest money deposit:

An earnest money deposit is essentially a deposit a buyer makes on a home they want to purchase, usually ranging from 1-10% of the sales price.

The amount of earnest money can vary, depending mostly on market interest, but it's essential to understand that it's not just a random figure.

A contract is written up during the exchange of the earnest money that outlines the conditions for refunding the amount, protecting both the buyer and the seller.

If a buyer breaks the terms of the contract, they may be at risk of losing their earnest money deposit.

Here's a breakdown of the potential risks and benefits of earnest money deposits:

The seller may be entitled to keep the earnest money as compensation for the break of good faith if the buyer breaks contract or fails to meet required deadlines.