Precautions When Making An Earnest Money Deposit
Posted on: 6 December 2017
When trying to buy a property, the earnest money deposit is one of the things that show the buyer that you are serious about the transaction. However, you need to be smart about making the deposit; you need to minimize your risks of losing the money. Here are some precautions to help you protect your earnest money deposit:
Don't Give It to the Seller
The first rule of making an earnest money deposit is not to give it to the seller. This is dangerous because the seller might withdraw the money prematurely, and you won't be able to control them. Sure, you may be able to get back your money via legal action, but why go through all that hustle if you can easily avoid it? The best way to avoid it is to give the money to a reputable third party to keep it in a trust until the transaction closes. The reputable third party can be something like a law firm or a real estate company as long as it's not handling the transaction.
Don't Authorize Early Release of the Funds
Another precaution is not to release the funds to the seller until the transaction closes. Don't do it whether the seller is begging you to do it or even if you believe they are the most trustworthy person you have ever met. For example, some sellers may approach you with a request to release the funds because the transaction is all but done and they want to use it towards the purchase of their next home. Unfortunately, you can easily lose the money that way if the transaction falls through.
Get a Receipt for the Deposit
Anytime you are making an official business transaction, you ought to treat it as such and get an official receipt for it, and the earnest deposit money is no exception. Don't treat it casually; you need to be able to follow the trail of the money and prove that you actually paid the specified amount. The only way to do this is to get an official receipt indicating the purpose of the money.
Don't Make the Deposit Unnecessarily High
Lastly, there is no need making a larger-than-normal deposit. The amount of "normal" deposit varies by region, but it usually ranges between 1% and 3%. Talk to your real estate agent and stick to what is normal in your area so that you don't unnecessarily risk a large amount of money for the transaction.
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