April 5th, 2017 7:04 AM by Jackie Graves, President
When making an offer on a home, you will show the sellers
you mean business with two things: 1) a chunk of cash called an earnest money deposit, and 2) a piece of paperwork known
as an earnest money contract.
Odds are you’re focused on the first. The earnest money deposit,
after all, is a large sum of money you put down on a house that
demonstrates your good faith in this transaction—and as such, it’s
safely held in an independent third-party account until this home
officially becomes yours. Meanwhile, the earnest money contract is just a few
flimsy pieces of paper. Can’t you just eyeball this fine print and move
No, you can’t! Or shouldn’t. The earnest money contract is one
of the most important documents to understand before you sign on the dotted
line, because it outlines exactly what will happen to that cash depending
on how this deal unfolds (or doesn’t).
other words, if the home sale falls through, you might be able
to take your earnest money with you—or you might have to forfeit it to the
sellers. The contract will tell the tale.
those reading glasses—here are some salient points to scrutinize on your
earnest money contract so you end up on the better end of this deal.
The deposit amount
First things first: This contract must include the amount
you plan to offer as your deposit. Bruce Ailion of Re/Max Town and Country in Atlanta
reminds buyers to consider this number carefully before submitting an offer.
“Many buyers want to make the smallest deposit possible to limit
their risk of loss,” he says. “But, it’s important to consider how the
seller will react to their decision. Sellers view this amount of money as
security and a measure of the buyer’s commitment to close on the property.”
So how much is considered reasonable?
That depends. Often earnest money deposits are between 1% and
2% of the full purchase price. However, Ailion cautions motivated
buyers not to limit themselves to that range since a higher deposit amount may
impress the seller and make that offer stand out.
As a buyer, another important consideration when drawing up the
earnest money contract is which contingencies to include, which give
you the right to terminate the deal if certain requirements aren’t met.
Exactly which contingencies are included in an offer will vary, but here are a
few of the most common:
Whatever contingencies are included in an offer, each comes
with a clause indicating how many days a buyer or seller has to satisfy
them. If buyers discover something they don’t like within
that period, they can exit the contract without penalty, says Adriana
Mollica, a real estate agent with Teles Properties in Beverly Hills,
While the exact time frame will vary, these are some
typical ranges to keep in mind:
While it is possible to extend the contingency
time frames if needed, there’s no guarantee the sellers will agree. If the
sellers aren’t willing to budge, they are within their rights to
dissolve the sale and walk away with your deposit money, so extensions
should be used as a last resort.
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