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Earnest Money Deposit in
an Offer to Purchase Real Estate
After you have come up
with an offer price, the next step is to determine how large a deposit
you want to make with your offer. You want the "earnest money deposit"
to be large enough to show the seller you are serious, but not so
large you are placing significant funds at risk.
One recommendation is
to make sure your deposit is less than two percent of your offered
price. The reason for this is that if your deposit is larger than
that, the lender will pay particular attention to how you came up with
the funds. You might have to provide a copy of a canceled check along
with a bank statement showing you had the money to begin with.
Normally, this is not a problem, but if you have a short escrow period
or are barely coming up with your down payment, it could pose an
inconvenience.
Another reason to limit
your deposit is "just in case." Although significant problems are the
exception and not the rule, they do occur. "Just in case" there is a
nasty or prolonged dispute between you and the seller, the less money
you have tied up in a deposit, the fewer funds you have placed at
risk.
As with practically
everything in real estate, there are exceptions to this rule, too.
During a hot market there may be multiple offers on the property that
interests you. A large deposit may impress a seller enough so they
will accept your offer instead of someone else’s, even when your
unknown competitor is offering the same price or slightly higher.
Since large deposits do
impress sellers, you may also find that by making a large deposit you
can convince the seller to accept a lower offer. More money up front
may save you money later.
copyright 2000 by Terry Light and RealEstate ABC |
