When you buy a home for sale in Ellicott City, you’ll most likely put down an earnest money deposit. But what is this deposit, what happens to the money, and will you get it back?
Here’s what you need to know.
What is an Earnest Money Deposit When You Buy a Home for Sale in Ellicott City (or Elsewhere in Maryland)?
Earnest money is a way to show a seller you’re serious about buying a home. It’s a fixed sum of money – usually 1 or 2 percent of the home’s purchase price, but it could be as high as 5 percent – that you give your REALTOR® to put in escrow until the transaction is completed.
Your earnest money deposit is an incentive for the seller to take the house off the market. By putting down a deposit, you’re showing the seller that you’re willing to put your money where your mouth is.
So how does that show the seller you’re serious?
If you back out of the deal without a valid reason (such as a contingency built into your real estate purchase contract), you forfeit your deposit and the seller gets to keep it.
When Do You Come Up With an Earnest Money Deposit?
You’ll come up with your earnest money deposit when you make an offer on a home. You and your agent will most likely discuss the appropriate amount, and you’ll give it to him to put in escrow until the transaction is finalized.
What Happens to Your Earnest Money Deposit?
Your earnest money deposit goes into an escrow account. It’s not your down payment! However, if everything goes smoothly, your earnest money deposit will go toward your closing costs when the transaction goes through.
Pro tip:Never give an earnest money deposit directly to a seller.
However, you can lose your earnest money deposit – and even if it’s not a substantial amount, it stings.
You can lose your earnest money deposit if you back out of a deal without being protected by a contingency in your contract. A contingency is a condition that you, the seller or the home must meet in order for the transaction to go through. For example, you might have a contingency in your contract that says you have to sell your current house before you can buy this new one – and if you can’t sell your current house, you’re off the hook and can get your earnest money deposit back.
But you can’t just back out of the deal if you get cold feet. Once you agree to the terms of a purchase agreement, you’re bound by them. If you don’t have a home sale contingency in your contract but you decide that you don’t want to buy the new home because you can’t sell your current home, you’re at risk of losing your earnest money deposit. The seller could be entitled to keep it, because now he or she has been inconvenienced; the seller now has to re-list the home and find a new buyer for it, starting the process all over again.
Are You Buying or Selling a Home in Ellicott City?
If you’re thinking about buying or selling a home in Ellicott City, we can help. Please call us today at 443-955-1227 to find out how! If it’s easier, fill out the form below and we’ll get back to you right away.