Lots of terminology gets thrown around in the world of real estate, and if you are a first-time homebuyer, you may not know what a lot of these terms mean. For example, you may have heard the term “earnest money” before, but do you know what it means?
What if I told you there was something you could that could make the home buying process go a little smoother? This is where earnest money comes into play. It’s a way to show a seller that you are 100% committed to following through with the transaction of purchasing their home.
So, what exactly IS earnest money?
Earnest money (EMD – earnest money deposit) shows the seller you’re serious about buying their home. Giving a seller an earnest money deposit as part of your initial offer provides a safeguard for them should the deal fall through because of an issue on your end. If you were to back out of the purchase without a reasonable cause, you would lose your earnest money.
That may sound a bit risky, but think about it from the seller’s point of view. Once they accept your offer, they might take their home off the market. Should you have buyer’s remorse and rescind your offer, the seller will have to list their home again, which means lost time on the market and a waste of energy and resources. An EMD provides protection to the seller if that should happen.
Now, if it is the seller who decides to pull out of the deal or fails to meet the contingencies put in place, you will get your money back. For example, if one of your contingencies was that the home pass inspection, and it doesn’t, they will have to return your earnest money.
But here is the good news! If everything goes as planned and hoped for, and the deal goes through, your earnest deposit will be held in an escrow account. Eventually that money will make its way to be part of your down payment and closing costs. Should your loan not require a down payment and the seller is paying the closing costs, then the money will be returned to you.
How much money is required for an EMD?
There is no right answer to this question. The answer for YOU depends upon a plethora of variables. The property’s location, the asking price, and the amount the seller desires for an EMD are all part of the equation. Generally an EMD is no more than 5% of the sale price…but every situation is unique. You may end up putting more money down in today’s super-competitive market. An experienced Realtor like Desi Sowers can assist you in determining the appropriate amount. Just keep in mind that the reason for making an EMD is to stand out to the seller by showing you are serious about buying their home.
Are you thinking of buying a home or selling your current home in New River Valley, VA? Then it is time to contact Desi Sowers, your New River Valley, VA real estate resource! Give her a call today at 540-320-1328!
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