Mar
22
Where Did All The Money Go? - Part 2
Written by: rebecca and filed Under Blog, Buyers, Real Estate |
In Part 1 of this multi-part series covering the various costs associated with the home purchase and subsequent ownership, I wrote about the down-payment. Today I am going to focus on defining earnest money.
Earnest money is the money that you, as a buyer, put at risk during the period from mutual acceptance to closing. This money is designed to show the seller that you are serious about your desire to purchase the property and that you are willing to risk some money if you were to default on the terms of the contract and not proceed with purchasing the home. Customarily speaking, earnest money is anywhere between 1% and 3% of the purchase price.
One thing that is important for both buyers and sellers to know is that the majority of real estate contracts in the state of Washington are buyer friendly. What I mean by this is that when properly monitored, it is quite difficult for a buyer to “default” on the terms of the contract. In fact, there are generally several “outs” between the time of mutual acceptance to contract close that a buyer can back out of purchasing the home and have their earnest money returned to them in full. Some examples of these common “out” clauses are the Seller Disclosure Statement, Inspection Contingency, Title Contingency and Financing Contingency. These four contingencies are left to the buyer’s subjective satisfaction. That is an important fact for both buyers and sellers to understand so that, depending on which side of the contract you are on, you can protect their interests.
So how does earnest money relate to closing costs and down-payment?
Earnest money is deposited with an escrow company and is applied toward the total amount that you need to bring to closing. This total dollar figure is a combination of the total down-payment and closing costs. It is important to note that earnest money IS NOT additional money that you need to bring to the transaction.It is merely paid at the front end of the transaction, as opposed to the back end, and is the money that is put at risk if you should choose to “default” on the terms of the contract.
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