Earnest Money Deposit with a Home Sales Contract
Getting ready to buy a home in Northern Virginia? Make sure you have money for the earnest money deposit.
Earnest money shows you're serious
The cash deposit paid by the prospective buyer of real property as evidence of good-faith intentions to complete the transaction. It is also commonly called bargain money, caution money, hand money, or binder.
The amount of earnest money deposited is completely negotiable. However it is a good idea to plan on giving 3% of the sales price or more. The deposit rarely exceeds 10% of the purchase price, and its primary function is to keep the buyer from defaulting. In the event of a buyer default, the earnest money can be taken by the seller as payment.
The earnest money deposit is usually given to the purchaser's broker upon writing the offer. Once the sales contract is ratified, the broker will cash the check and hold this money in escrow on behalf of the purchaser. At settlement the earnest monney is credited toward the purchaser's down payment. If the seller defaults, the purchaser may have this money returned, or elect to sue the seller for specific performance.
If at any point the contract becomes void, both parties will execute a release and the earnest money will be returned to the purchaser. Common examples of this would be the purchaser voiding the sales contract as a result of a poor home inspection, radon inspection, are after receiving notice of not qualifying for financing. This assumes that these contingencies are a part of the sales contract.