Contact Jim

850-206-6140
Or Email Jim

Categories

Archives

Earnest Money: Clarifying The Confusion For Pensacola Home Buyers – Part 2

 

Earnest money shows commitment to buy. My real estate experience has shown that many home buyers in the Pensacola real estate market do not understand the concept of earnest money. This is an important concept to understand when making an offer on Pensacola real estate. 

Click the link below to read Part 1 of this article:

Earnest Money: Clarifying The Confusion For Pensacola Home Buyers – Part 1

In Part 1 we discussed what earnest money is and how much should be offered when buying a home in Pensacola Florida. In Part 2, we will address the following questions:

1. Who holds the earnest money?

2. What ultimately happens to the earnest money?  

These are 2 questions I encounter regularly when working with Pensacola real estate buyers.

When a buyer makes an offer on a home, the buyer will give their real estate agent a check for the earnest money deposit. The real estate contract Earnest_money_check_writing_RS250will dictate to whom that check is made payable. The check may be written to the real estate broker, who is required to deposit it in a trust fund. However, this tends to be a burden on the brokers, so the check is commonly made payable to the title company that is expected to handle the closing of the real estate transaction. The title company holds the earnest money in escrow.

At the end of the real estate transaction, whether it be a successful closing or fail to close, there are 3 things that can happen to the earnest money.

1. It is applied to the purchase price of the home
2. It is returned to the buyer
3. It is disbursed to the seller

If all goes well and the real estate transaction results in a successful closing, the earnest money is applied to the purchase price of the home. Thus if the home is sold for $100k and the earnest money deposit was $1000, the buyer will need $99K to close.

If the real estate transaction cannot be completed, the earnest money will be returned to the buyer if the buyer complied with the terms of the contract. Most real estate contracts, including those used in the Pensacola real estate market, require that the buyer apply for financing within a certain number of days from the effective date of the contract. If the buyer makes a good faith effort to obtain financing and cannot, the earnest money will be returned to the buyer. If financing is obtained, the buyer still has the option of having a home inspection. If the buyer is not satisfied with the results of the inspection, the buyer can back out of the the contract and have the earnest money returned.

This has been a simple overview of how earnest money can be returned to the buyer. I go into much greater detail with my Pensacola real estate clients with regards to their obligations under the real estate contract.

If buyers fail to act in good faith in complying with the terms of the real estate contract, the earnest money can be disbursed to the seller. This generally happens if the buyer is determined to be in breach of the real estate contract.

A good real estate agent will do everything possible to prevent breach of contract, but ultimately it is the buyer’s responsibility to meet the terms of the contract.

Temp1

 As a final note, there are 2 important points that I need to address in regards to earnest money. These points are:  

The fact is, earnest money is not a requirement of an offer to purchase real estate. If a seller is willing to accept an offer without an earnest money deposit, so much better for the buyer. However, the reality is that most sellers will require an earnest money deposit.

Buyers also need to know that they must have the funds in their account to cover the earnest money check. The check is not held by the designated escrow agent until closing, it is immediately deposited into an account. Thus the earnest money funds must be available immediately. A bounced earnest money check can cause serious problems with the real estate transaction.

Look for detailed discussions of real estate contract terms is upcoming articles. We’ll see just how interesting I can make a contract discussion. I can hear the yawns already. 
 

Click on Pensacola Real Estate News for a complete list of articles indexed by category.

 

  1. Port Orange Juice

    It seems that the earnest money amount
    offered on contracts can be regionally influenced. Many people here in the Daytona Beach area make offers with $500 to $1000 earnest money deposit on a home in the 100K to 200K range.

    Typically, a seller should get as much as possible in order to make sure that the potential buyers will think long and hard before they walk away from a large deposit.

    In this cool market though, sellers may have to make some concessions on offers such as not requiring a huge deposit from the buyer, although we all know that this is a big psychological commitment for a buyer.

  2. Karl

    It may be more standard around here now also, being our market is so down. I still like to try and get more for my sellers if at all possible.

  3. Wasilla Real Estate

    This is a great description of the way earnest money works.

    It looks like you are beginning an onlne school for real estate contracts.

    Alaska is different from Pensacola in that the brokers usually hold the earnest money.

    Only occasionally is it held by the title company.

    Almost always it isn’t released to either party unless both the buyer and seller agree on the disbursement.

    Marty

  4. South Charlotte Real Estate

    Karl- you lay out the pros and cons expertly of earnest money deposits, clearly diagramming the 0 sum game we Realtors play. If we are representing the buy side, of course we want a minimal deposit. If we represent sellers, we want a larger committment. Now in your market, how would a low ball, but not far off, offer be received if accompanied by a large deposit check?
    Interesting… Terry McDonald
    ps I admit it- I like contracts,more specifically I like understanding contracts- it gives advantages to your buyers and sellers

Leave a Reply