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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 |
