Monday, May 19, 2014

Home Buying Questions Answered: How Much Earnest Money Do I Need?

Writing an offer on a home is an exciting time whether it is a first time buyer or someone who has purchased a home previously. Going through the offer raises many questions, one of the most important is about earnest money and how much should be written into the offer.  So what exactly is earnest money and how much does a homebuyer need?

Today’s Real Estate Term is:

Earnest money The funds that a buyer submits with their offer or purchase agreement to demonstrate to the seller their seriousness about buying the property. It should be an amount sufficient enough to indicate to the seller that the buyer will not walk away from the deal without good reason. It is not the same as a down payment. If your offer on the home is accepted, the earnest money check will be cashed and placed into a broker’s trust account. The funds will go toward the purchase price of the home.

HOW MUCH Earnest Money Does a Buyer Need? In Minnesota, most sellers expect to see a minimum of 1% of the sale price of the home but that has been increasing. Often sellers want the buyer of their property to have a bit of skin in the game. This is especially true with new construction where up to 5% or more could be required.

It is very important to keep in mind if the offer is accepted and the check for earnest funds will be cashed and held in a broker's trust account. If for some reason all contingencies are not met or a situation arises where the sale does not go through, the buyer does NOT automatically receive a refund of the earnest money. But the seller will not automatically get to keep these funds either. In the event of a cancellation, the buyer and seller must reach an agreement to cancel the contract which will outline the disbursement of the funds.

Copyright 2014