As a buyer, once you settle on a home to purchase, you often show your commitment with an earnest money deposit. But if you're not careful, you could lose thousands of dollars. Realtor.com® recently featured some of the biggest mistakes home buyers most often make with earnest money deposits. Review the list below to make sure you don't make these same mistakes.
Failing to understand exactly what an earnest money deposit is. It is proof that a buyer is committed to completing the sale. Earnest money is used as credit toward the down payment. It's often a negotiable amount between the buyer and seller and usually about one to two percent of the purchase price, although it could be much higher.
Not offering up enough. When a market is competitive, offering more earnest money may be one way to get your offer to stand out. For example, on a $500,000 home, in a competitive market, you may want to offer the buyer up to $20,000 to $25,000, or up to five percent, depending on the competing offers. But keep in mind, your deposit could be in jeopardy if you default on the contract so it's important to be certain before moving forward with an offer and deposit.
Removing contract contingencies. In the past, I've seen buyers agree to remove a loan contingency from the contract and then their loan falls through and they lose their earnest money deposit. Never give up your right to cancel your purchase until you are 100 percent certain that you're going to be able to close. Watch for giving up other contingencies as well like waiving inspection issues, appraisal issues, or problematic title searches.
Not abiding by contract timelines. Ensuring that you as a buyer stay on the schedule dictated by a contract will help ensure that you don't lose your earnest money deposit.
Although this may seem a little intimidating, it doesn't have to be. As your agent, I'm here to help suggest a competitive earnest money deposit and help protect your money once the deposit has been made. Contact me today for more information!
