What home buyers ought to know about earnest money
August 29th, 2007 - Categories: Buying a home in the Dothan area
By: Charles Woodall
Managing Broker
http://www.dothanhomesearch.com
Earnest money, sometimes called a binder, is an amount of money a buyer puts down at the time of contract to show the seller that they are serious about purchasing. And they are so serious, they are willing to put up this much money now as a good faith gesture. This is supposed to “hold” the property until the buyer can close on the deal. As long as all parties do what they promise to do in the sales contract, then the buyer receives this earnest money back at closing to go toward their costs. If either party does not do what they are supposed to do according to the contract…well, that is a subject for another post. For now, let’s assume that everyone is a good, upstanding citizen and holds up their end of the bargain.
So you have found that perfect house and are ready to write a sales contract. How much of an earnest money should you offer? There has been a healthy debate around our office lately on this very subject. Here are a few guidelines:
1- Don’t skimp. The earnest money is going toward your purchase anyway. If you cover your bases in the contract with the necessary contingencies and don’t back out of the sale, there is very little chance you could lose this money.
2- Consider the competition. If a seller is looking at competing offers, the contract with the most earnest money offered will be assumed to be the most serious.
3- Make a statement. In the Dothan real estate market (median price of around $135,000), your binder should be a minimum of $500, preferably $1,000. As the price goes up, so should your earnest money offer. A good rule of thumb is a deposit equal to 10% of the purchase price.
Buying a home is a serious proposition, so be serious with the amount of earnest money you offer.
If you have had an interesting experience related to earnest money, leave us a comment below.
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This entry was posted on Wednesday, August 29th, 2007 at 1:14 pm and is filed under Buying a home in the Dothan area. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
