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So confused.... Earnest money HELP

Posted by on Jun. 9, 2009 at 4:54 PM
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Why do you have to put a deposit on the house?  Our realtor explained to us it shows the sellers how serious we are.  Now we don't mind putting money down if it went towards closing costs.  I don't understand why we have to put money down to show them how serious we are, I mean we are making an offer, that is serious to me.  BUT I have never sold or owned a home so this is all new to me.

I don't know maybe I am not understanding it right....

The realtor just told me that "It goes towards the total amount of money needed  towards settlement at closing"

so does that mean closing costs??  I have asked her out right if it will be applied to closing costs and she just keeps telling me the above.

Okay so my question is... 

Does the money we give the seller to put into escrow with our offer go towards closing costs? 


by on Jun. 9, 2009 at 4:54 PM
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Replies (1-10):
My_3_Babies
by on Jun. 9, 2009 at 6:22 PM

 We are currently buying a house (Just got our offer accepted today). From what I uderstand and what our realtor has explained to us, Depending onthe deal it will go toward either the downpayment or the closing costs. We had to put up $1000. and it specifies in our contract that ours will go toward our share of the closing costs.

  Read the part of your contract hat talks about the earnest money and it should say what it will go to at closing. Hope this helps some.

RealtorHolly
by Group Admin on Jun. 10, 2009 at 8:14 AM

Earnest money goes toward closing costs. There is no hard and fast rule & while it is definitely the norm, it is not mandatory. I have had about 2 deals in ten years with no earnest money accepted.  Earnest money amounts vary too; generally based on the price of the house.  $500 on something under 120k is not unusual, I generally ask my Buyers to put a $1,000 earnest money and some Sellers are wanting 10% of the sales price as earnest money. 

I have no idea how your contract reads and it would be presumptive of me to assume there are places in the contract that spell out how earnest money could be returned should the house not reach closing. The contracts I use, have in the financing section should you be not ultimately rececive financing that the earnest money be returned to the Buyer. It also has that in any area where you can make objections to the condition of the house (Ie, inspection deadlines, repair amounts, survey or sellers disclosure) if you stay within the deadlines stated.

Earnest money is held in a trust account, which typically in New Mexico is held by the title company as the 3rd party.  The Buyer does not have the money in their pocket.  Trust accounts could be set up through one of the real estate companies as well; although I don't think it is typically done anywhere anymore----nobody wants the liabiliaty.  I don't know how regions that close with attorneys do it, but I would think it is pretty much the same.

Keep asking your Realtor questions til you understand something 100%. That is their job. Just like in school you were supposed to keep asking the teacher til you understood. You need to feel comfortable writing that check,understanding the process & what is next.  Tell the Realtor that what may be second nature for them, is not for you and you are the one writing the check, sigining papers.  This is most always going to be one of the biggest financial decisions you make each time you buy & sell---don't do anything that makes you confused. Ask, ask, ask!

Good luck.  I know it is a big chunk of money up front and yes, the offer should show you are serioius.  So should the letter you are going to present from the lender---but more than anything money always talks.

 

 

 

Holly Bawcum




Associate Broker, Albuquerque, NM




RE/MAX Alliance Realtors




505.604.6110

momma2-3boys
by on Jun. 10, 2009 at 8:50 AM

THANK YOU THANK YOU THANK YOU!  I defiantly understand this from your point.  Our realtor is one that thinks we should or do understand this process and most of the communication is over the phone or most by email since we live 2 hours away from the office and where we are relocating.  She would never say yes or no and came out with technically terms instead of layman's terms.  I guess I should be more persistent with her and ask ask ask, lol!

So we decided to put down right under 6,000 but STATED to our realtor that we understood that is earnest money but would like that to go towards closing at the end.  She had no problem with that.

Again many thanks to you and the previous poster!  Wish us luck, we are receiving the contract via email and going to read over it and send it back so our offer will be in TODAY!

Quoting RealtorHolly:

Earnest money goes toward closing costs. There is no hard and fast rule & while it is definitely the norm, it is not mandatory. I have had about 2 deals in ten years with no earnest money accepted.  Earnest money amounts vary too; generally based on the price of the house.  $500 on something under 120k is not unusual, I generally ask my Buyers to put a $1,000 earnest money and some Sellers are wanting 10% of the sales price as earnest money. 

I have no idea how your contract reads and it would be presumptive of me to assume there are places in the contract that spell out how earnest money could be returned should the house not reach closing. The contracts I use, have in the financing section should you be not ultimately rececive financing that the earnest money be returned to the Seller. It also has that in any area where you can make objections to the condition of the house (Ie, inspection deadlines, repair amounts, survey or sellers disclosure) if you stay within the deadlines stated.

Earnest money is held in a trust account, which typically in New Mexico is held by the title company as the 3rd party.  The Buyer does not have the money in their pocket.  Trust accounts could be set up through one of the real estate companies as well; although I don't think it is typically done anywhere anymore----nobody wants the liabiliaty.  I don't know how regions that close with attorneys do it, but I would think it is pretty much the same.

Keep asking your Realtor questions til you understand something 100%. That is their job. Just like in school you were supposed to keep asking the teacher til you understood. You need to feel comfortable writing that check,understanding the process & what is next.  Tell the Realtor that what may be second nature for them, is not for you and you are the one writing the check, sigining papers.  This is most always going to be one of the biggest financial decisions you make each time you buy & sell---don't do anything that makes you confused. Ask, ask, ask!

Good luck.  I know it is a big chunk of money up front and yes, the offer should show you are serioius.  So should the letter you are going to present from the lender---but more than anything money always talks.





kn2418
by Group Owner on Jun. 10, 2009 at 11:13 AM

I don't let my clients put down more than 1% earnest money. $6,000 seems like a LOT! But things differ in different states.

It breaks down something like this:

Purchase price =$200,000

Down Payment required by bank= (5%) $10,000

Minus Earnest money already paid ($6,000)=$4,000

Plus Mortgage/bank fees=$3,000

Amount Buyer must bring to closing=$7,000 (vs. $13,000 you would have had to bring if you hadn't already paid earnest money.)

 Earnest money is a pretty archaic practice. In my state, neither party can keep earnest money unless both parties sign a release. If either refuses to sign, they are stuck in limbo in a contract - buyer can't buy anything else and seller can't sell anything else. Then it goes to arbitration and they get paid out of the earnest money - which is usually only 1%. Since you have so many contingencies the buyer can use to back out, it's rare that buyers default without contingency (a valid reason) and get the money back. You'd basically have to say, "Oops, I just changed my mind for no reason." How often would that happen??

Kristin
Questions about buying or selling real estate? Check out my Real Estate Tips & Real Estate Marketplace groups!
http://www.cafemom.com/group/RealEstateTips
http://www.cafemom.com/group/RealEstateMarketplace
http://bestmilwaukeehomes.com/

momma2-3boys
by on Jun. 10, 2009 at 11:20 AM

I did a typo, we are putting down a little under 4,000 not 6,000 (sorry).  Thank you for explaining what the earnest money is and why it is important, like I said earlier our realtor hasn't explained a lot to us about this and we are actually still waiting to hear back from her since late yesterday afternoon to email us the contract to put an offer in.

Quoting kn2418:

I don't let my clients put down more than 1% earnest money. $6,000 seems like a LOT! But things differ in different states.

It breaks down something like this:

Purchase price =$200,000

Down Payment required by bank= (5%) $10,000

Minus Earnest money already paid ($6,000)=$4,000

Plus Mortgage/bank fees=$3,000

Amount Buyer must bring to closing=$7,000 (vs. $13,000 you would have had to bring if you hadn't already paid earnest money.)

 Earnest money is a pretty archaic practice. In my state, neither party can keep earnest money unless both parties sign a release. If either refuses to sign, they are stuck in limbo in a contract - buyer can't buy anything else and seller can't sell anything else. Then it goes to arbitration and they get paid out of the earnest money - which is usually only 1%. Since you have so many contingencies the buyer can use to back out, it's rare that buyers default without contingency (a valid reason) and get the money back. You'd basically have to say, "Oops, I just changed my mind for no reason." How often would that happen??


kn2418
by Group Owner on Jun. 10, 2009 at 11:23 AM

IMPORTANT: Don't give the earnest money check with the offer. Write in the offer that earnest money will be paid upon acceptance or within 24 hours of acceptance. And see if you can keep it at 1% of the purchase price!

Kristin
Questions about buying or selling real estate? Check out my Real Estate Tips & Real Estate Marketplace groups!
http://www.cafemom.com/group/RealEstateTips
http://www.cafemom.com/group/RealEstateMarketplace
http://bestmilwaukeehomes.com/

momma2-3boys
by on Jun. 10, 2009 at 11:29 AM

Thank you so much, you have been very helpful.

Quoting kn2418:

IMPORTANT: Don't give the earnest money check with the offer. Write in the offer that earnest money will be paid upon acceptance or within 24 hours of acceptance. And see if you can keep it at 1% of the purchase price!


RealtorHolly
by Group Admin on Jun. 10, 2009 at 12:46 PM

Even 4,000 sounds like a lot. I agree with Kristin, earnest money is becoming very archaic (however a tradition that is hard to break!)  We have in the contract that each party agrees to go to mediation should there be a dispute over earnest money if the contract falls apart. NM contracts are very buyer friendly.

I have a co-worker who was a California agent previously and she preaches about their 17 day rule there.  She said that within the first 17 days of the escrow all inspections, apprasials. survey's & any other items must be completed. The buyer can back out in the first 17 days for anything; after that period all contingencies must be removed and if the sale fails at that point the earnest money is awarded to the Seller.  Sounds pretty scarey---lol.

Good luck with your offer!

tenacity
by Group Admin on Jun. 11, 2009 at 3:31 PM

 Almost always you have to give an earnest deposit. And she's right, in a nutshell, it's to show you are genuinely interested in the property.

BUT,

you have choices as to whether you want the earnest to be credited toward closing costs or refunded back to you at closing. 

you rockMary Wilcox
               Realtor
Reece & Nichols
Kansas City Metro Area
816.407.5284   email me:  marywilcox@reeceandnichols.com

momma2-3boys
by on Jun. 11, 2009 at 3:52 PM

You ladies are very helpful.  We were able to get it applied to the closing costs if the offer is accepted of course.  We just put our offer in this afternoon so we will see.  We also only decided to give 3,000 instead after some of the above posters advice.  Our realtor wasn't ecstatic about it.  She told us to put anywhere from 3,000-5,000, the house is priced under 300,000. 

Again thank you ladies for your help and advice!

Quoting tenacity:

 Almost always you have to give an earnest deposit. And she's right, in a nutshell, it's to show you are genuinely interested in the property.

BUT,

you have choices as to whether you want the earnest to be credited toward closing costs or refunded back to you at closing. 


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