The Buyers Deposit

Check

 Over the years I’ve seen lots and lots of confusion, from both buyers and sellers regarding the subject of the buyers deposit. In our area there are two commonly used contracts used for purchasing homes and on both the deposit looms large right on top of page 1. Buyers in this area enter into a contract by depositing earnest money into an account with a Title Company who holds these funds until close of escrow where, typically, they’ll apply to the buyers down payment. Both contracts are written to allow for both an initial deposit as well as a increased deposit that is usually made after 10 days in an escrow or after the removal of all of the buyers contingencies. These dates are negotiable.

It’s been a practice in our area for awhile, and I’ve been a fan of this practice as well,  for the buyer to make a full 3% deposit up front. In my experience, one of the seller’s biggest worries is often whether or not the buyer can afford their home and if not, will their deal fall through later on. A 3% deposit up front tends to demonstrate the sincerity of the buyer and helps to allay seller anxiety more than $1000.00 initial deposit does. If a buyer has suffient funds making the full 3% deposit up front gives them a stronger offer over all and these funds can be placed into an interest bearing account should the buyer request that. It’s very important to note that buyer’s deposits are protected by the contingencies they have written into their contract and will be returned should the buyers change their minds during that period. I’m going to have to do an entirely separate blog post about contingencies one of these days otherwise this post will go on forever, but let’s just say that it’s in this area that confusion often arises. If a buyer changes his or her mind after 48 hours, and they have a contingency, they get their deposit back. If a buyer has a contingency and does inspections that frighten them and want to back out…they get their deposit back. I’ve seen sellers be surprised by that fact. The buyer’s deposit is most likely at risk if they back out after removing all contingencies.

Another area of confusion has also been at what point the check gets cashed. When you write a check to a Title company for your deposit and your Realtor negotiates with the seller and their agent your check doesn’t get deposited until there has been mutual agreement between both parties…and that could take a number of days in some cases. It’s also important to remember that once that agreement has been reached and you’ve been happily informed that you’ve bought that wonderful new place your check will be sent to the Title Company…and they will cash it. “What?” you say. On several occasions earlier in my career I’ve had buyers call me after we had been in escrow a week and said “Hey, the Title Company tried to cash my deposit check! I don’t have any money in that account! I thought they just held it?”…No, they cash it. Having said this, it’s perfectly understandable to be flustered and stressed when buying a house and I’m not making fun of anybody, but I have this conversation now with every client. When you ratify, your deposit gets cashed…it’s a good idea to have funds in that account.

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