One of the things I end up talking about quite a bit as a buyer’s agent is earnest money.
So, who is Earnest?
Earnest is the guy who whispers in the ear of the seller that you are ‘earnest’ in your intention to complete the purchase of their home. It’s easy to sign a contract. After all, it’s just a flourish of the pen. What’s harder is enforcing that contract. That’s where earnest comes in. If you agree to a purchase and then you decide that you’ve changed your mind without a good reason spelled out in the contingencies, you essentially forfeit your earnest money.
When do I pay earnest money?
In Chattanooga real estate transactions, you will usually write a check at the same time that you are signing the offer to purchase the home. Your check may or may not be held until you actually reach an agreement with the seller. Regardless, once you get to a binding agreement , the check must be deposited within a certain number of days – specified in the contract.
Where does my money go?
Generally, the selling broker (that’s your buyer’s agent’s boss) holds the earnest money in an escrow account until the day of closing. Some contracts will specify that the money is held by the listing agent and some sellers (usually foreclosures) require that it be held by their closing agent. The amount of your earnest money will show up on the settlement statement as a credit to the buyer. It effectively is a deposit toward your closing costs and/or down payment. Say you are required to pay $7,000 down, and you have $3,567.12 in closing costs that you are paying out of pocket. You put up $2,000 in earnest money when you signed the contract. The amount that you will need to bring to closing will be $8,567.12 ($7000+$3567.12-$2000).
What if I my financing falls through or I find problems when I do my inspection?
These are standard contingencies. As long as they are present in the contract, you’ll still get your hard earned cash back if you decide to back out. There could be other valid reasons for backing out, depending on how your contract is written, which would also allow for a refund of your earnest money. Just another good reason to have a buyer’s agent working for you, making sure that the contract is written to your benefit.
If you are sincere in your desire to complete a purchase, you have nothing to fear from earnest. He’s just a way to let everybody involved know that you are no one to be trifled with.