The topic of earnest money comes up all the time with our buyer clients. So, we decided to write about it so that others can learn.
Please keep in mind that rules regarding earnest money vary by state and it’s best to thoroughly read the purchase agreement to fully understand the details of how earnest money will be handled.
To begin, let’s start with the basics. Earnest money, also known as “good faith” money, is not actually required by law in the State Of Ohio. It is, however, common and expected by the seller.
It is an amount of money that a buyer offers to the seller up front and is refundable in most cases if the deal doesn’t go through.
The money doesn’t actually go directly to the seller. It goes to a title company or real estate agency that holds onto the money until closing. Then, it gets applied to the buyer’s costs.
It’s basically a way for a buyer to show a seller they are committed to moving forward with the transaction. If a buyer doesn’t offer any earnest money, then there would be nothing stopping them from pursuing another home with no recourse to the seller. A situation deemed unfair by a seller.
HOW MUCH IS ENOUGH?
The most common question we get involves how much money a buyer should offer. Unfortunately, there is not one specific answer. The general rule of thumb is 1-2% of the purchase price but it all depends on the situation.
If a buyer is in a potentially competitive situation, greater earnest money may make their offer more attractive than another buyers’.
The other terms of the offer, including price, dates and other contingencies, will also come into play. The earnest money is just one component of the overall offer.
CAN I GET MY MONEY BACK?
For the most part, a buyer is entitled to their earnest money back if a transaction doesn’t go through. However, there are always exceptions. We have seen rare cases where a seller was allowed to keep all or part of the earnest money, but the circumstances here were unusual.
As long as you follow the terms of the contract, you shouldn’t have any problems. Your agent and or their manager can also provide guidance should a unique circumstance present itself.
Although earnest money is only one small part of the transaction, it does play a big role during negotiations and should be taken seriously.
The above information is compliments of The Schuman Team, Amy and Dan, of Howard Hanna Real Estate Services. They specialize in Solon luxury homes, relocation, and first-time buyers.
They can be reached at 216-346-3235 or 216-403-9189 or via email, firstname.lastname@example.org or email@example.com.
The Schumans service the following Cleveland area suburbs: Aurora, Bainbridge, Bay Village, Beachwood, Bentleyville, Chagrin Falls, Cleveland Heights, Gates Mills, Highland Heights, Hunting Valley, Lakewood, Lyndhurst, Mayfield Heights, Mayfield Village, Moreland Hills, Oakwood Village, Orange, Pepper Pike, Shaker Heights, Solon, South Euclid, University Heights, Westlake, Woodmere.
The Truth About Earnest Money is the property of The Schuman Team and may not be duplicated or used without their written consent.©Noevember, 2013