Tuesday, March 2, 2010

Earnest Money! How much? Why?

Earnest Money! How much? Why?

It's surprising to hear all the different answers regarding earnest money, especially the answers that I hear have been given from other REALTORS and agents. So, lets ask the probverbial question....How much earnest money is required to buy a house?

Well, are you ready? Hold on to your checkbook because the answer is....Zero! Zip, Zilch, Nothing, Nada! There is now law or nothing in the real estate purchase contract that stipulates earnest money is required (at least in Utah).

So what is earnest money? Earnest money is your 'skin in the game'. It is a measurement of your intent, level of committment, sincerity, or desire to purchase the property. It is also what you could potentially lose if you fail to perform or default in the contract.
A higher amount of earnest money demonstrates a higher level of intent because of what you could potentially lose.

Can you buy a house or propertry without earnest money? Maybe. If the seller has great faith in you to perform, or there are other terms in your offer to make it attractive a seller may consider your offer with no earnest money. It is not likley though. Every agent and REALTOR will most likley ask you to refuse an offer without earnest money. I know I would. Or, at the very least counter it.

When you go through the trouble of selling your home and preparing to move, it's a no brainer that you are looking for a 'strong' buyer. Pre-approved, serious, able to perform in a timley manner. These are the things I expect for my sellers and these are the things I convey to sellers about my buyers.

Again, there are no laws or regulations that determine the amount. A seller can request a minmum amount as a requirement for purchase. No harm in that except you may actually disqualify a few well qualified buyers because of their unwillingness to pledge the required amount.

1% is generally considered to be an acceptable amount for earnest money. Especially in properties priced 300K and higher. 1K - 2K will usually work for properties priced between 200K and 300K. And for properties that priced below 200K, 1K is what we like to see but 500 to 1K will work most of the time.

Will you get all your earnest money back if you don't buy the property? Depends. If you have followed the contract and are canceling according to the provisions of the contract, you are entitled to get all your money back!

If you cancel but have violated some provision of the contract you most likley will lose your earnest money in full, but may be able to negotiate for part of it.Keep in mind all things real estate are negotiable.

Don't be afraid to ask your agent/REALTOR questions and be sure to always read the contract for yourself.

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