As a Buyer, How much Earnest Money
Deposit can I Pay?
The thumb rule often used is that
a buyer can confidently pay up to
2% of the offer price as earnest money
deposit, but not more.
Third Party Escrow
The earnest money deposit is usually
to be placed in to an escrow account.
The money will be there in the escrow
till closing. During that time the
buyer and seller can jointly control
the money. Once the deal is closed,
the earnest money deposit is added
to buyer’s down payments.
What If I Decide Not to Buy the Home?
For one reason or other you may decide
not to buy that home. In that case
what happens to the earnest money
deposit that is in escrow? Here is
where the seller and you, the buyer
may disagree. The seller may wish
that the money in escrow is to be
paid to them. But, you, the buyer,
as you have not made any purchase
would want the money back. So, how
is it resolved?
Since money is held in a third party
escrow, you and the seller should
come to a mutual agreement. Then only
the funds in the escrow can be released.
Once mutual agreement between you
and the seller is reached the funds
are released from the third party
escrow to the buyer, subject to any
deductions for any cancellation fees,
etc.
Earnest money deposit in escrow can
be released only when both parties
come to an agreement or when an order
is issued by the court of law. Generally
parties try to come to terms with
each other as it is less time consuming
and a less costly alternative than
going to court and fighting it out
legally.
In certain states, after a stipulated
time period if no release authorization
is received from the parties, the
earnest money deposit in the escrow
is returned to the buyer.
Tips to the Buyer
Sometimes problems may arise with
the inspections or title search. A
buyer should include such conditions
in the sales contract upon which the
earnest money deposit will be returned
to them.
And it is always wise not to give
the earnest money deposit to the seller
before the deal is closed.
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