You’ve hired a real estate agent and pre-approved for a mortgage. You made a budget, picked a good neighborhood, and now, finally, you’ve found just the right Providence home. Now it’s time to write an offer and put down earnest money. But wait--what is earnest money? This is money that you put down so the seller knows you are serious about buying the house. It’s typically 1 to 2% of the price you offer. When the deal closes, earnest money goes toward closing costs or the down payment. In a hot market with each house getting lots of offers, you’ll want to put down a larger earnest money deposit. It varies quite a bit, so talk with your agent.
Once you’re at this stage of your Providence real estate purchase, you’re very serious about buying the particular house and have most of your ducks in a row. However, in order to protect your earnest money in case things don’t work out, you do need to take several important precautions.
Four Ways to Protect Earnest Money in a Providence Real Estate Deal
1. Deposit earnest money with a trusted third party. A title escrow company, real estate brokerage, or a legal firm are all good choices. Do not give the money directly to the seller. Be sure you have a receipt, too.
2. Do not give up contingencies. You want to be able to walk away from a deal if your financing falls through or if a huge problem turns up on the home inspection. A due diligence period should be in the contract, too, to give you time to figure out if you should move forward. With contingencies in place, you’ll get your earnest money back. If you’re buying a house “as is” be sure to do due diligence before putting any money down. If you back out of an “as is” deal, you won’t get your earnest money back.
3. Stay on schedule. Some contracts will include a definite closing date. You need to keep moving in order to meet that deadline. Being too slow could void the contract, and you’d lose your earnest money.
4. Read the contract that voids a sale. After a deal falls through, both the buyer and the seller have to sign a contract that voids the sale. If the seller won’t give back all the earnest money you believe you’re entitled to, do not sign that contract. This will make the house impossible to sell because of a blemish on the title.
Get in touch with our office to discuss your Providence home buying plans. We’ll walk you through the whole process, including the fine points of the earnest money deposit.