In real estate transactions, buyers typically offer earnest money as part of their offer. Earnest money is equivalent to a “good faith deposit”. Deposits are not required, but in a competitive home buying market they will likely be a requirement of the seller. These funds are applied to the amount due from the buyer at closing. However, if the buyer backs out of the purchase for a reason that is not addressed in the purchase contract, the seller may have claims to the earnest money provided by the buyer.
In our geographic region, purchases under $100,000 commonly have earnest money amounts of $500 and they usually increase in $500 increments for each $50k increase in the purchase price (ex:$200k purchase price can expect around $1,500 to $2,000 for earnest deposit funds). These amounts can widely vary though since the terms of real estate contracts can be written according to the agreement between the buyer and seller.
When is the earnest money collected?
Typically, upon acceptance of the purchase offer the buyer is to provide the earnest money deposit within the next few days to demonstrate their commitment in following through.
Who collects the earnest money?
The selling agent’s (buyer’s agent) office typically collects and holds the buyers earnest money. This could also be a title company, lawyer or other party that is agreed upon within the purchase contract. These funds are held in an escrow account until closing occurs.
Can a buyer deposit cash for earnest money?
- For tracking purposes your lender will most likely require for the funds to be able to be traceable (personal check, check, money order, etc)
What happens if the sale does not close?
- The funds would be returned to the buyer if they back out due to a contingency item (financing, appraisal, inspection, etc) of the sale.
What happens if the seller backs out of the sale?
- The funds would be typically returned to the buyer if the contract is terminated due to the seller.
Check out this article below for more details about earnest money:
If you have questions about the home buying or selling process in the Upper Peninsula of Michigan, feel free to contact me. Whether your purchase or sale of a property is in the near future or further down the road, I’m here to help you on your real estate journey. My name is Rick Curtis and I am an Associate Broker with Key Realty Delta County in Escanaba, MI. Call/Text (906) 280-6118 or email Rick@KeyRealtyUP.com