How Not to Lose Your Earnest Money in a Real Estate Purchase

Buying a house is a long and complicated process; it is the most expensive and most complex financial transaction that most people make in their lifetimes.  Every time you complete one step and think that you are getting close to closing on the purchase, more hurdles appear that you must clear before the house belongs to you except that you have to pay the bank extraordinary amounts of money to let you keep it.  Sometimes it feels like you keep promising but you are not getting any closer to the point where money or real estate property changes hands.  When you pay earnest money, though, you know that things are getting serious.  The payment of earnest money marks the transition from expressing interest in buying a house to seriously preparing to finalize the purchase.  It is a deposit to keep other prospective buyers away while you get all the details of the purchase in order.  To find out more about paying earnest money to start the process of purchasing a house and about getting the money back once the purchase becomes final, contact a Bronx real estate attorney.

When, Why, and How to Pay Earnest Money

Earnest money is a deposit on the purchase of a house.  A deposit is not the same thing as a down payment.  A down payment is the amount you pay the bank upfront when you take out a mortgage loan; the mortgage principal is the sale price of the house minus the down payment.  By contrast, a deposit is placeholder money.  It reserves your position as the only buyer whose offer the seller is seriously considering.

The amount of earnest money is usually calculated as a percentage of the seller’s asking price.  The percentage varies according to how competitive the housing market is at the time.  It can range from one percent to 20 percent, but earnest money, like almost everything else, tends toward the expensive side in New York City.

Do not pay earnest money directly to a seller; if you are foolish enough to do that, it is nothing short of a miracle that you have survived in this town for as long as you have.  Instead, pay it into an escrow account.  Some escrow accounts earn interest, so by the time the sale is final and you get the earnest money back, its value has increased.  If it takes a long time to finalize the sale, the seller might ask you to pay several installments of earnest money.

Earnest Money Contracts

Getting everything in writing helps you protect your financial interests, so you and the seller should sign an earnest money contract before you pay any earnest money.  The earnest money contract should outline the situations where the buyer gets to keep the earnest money and where the seller gets to keep it.

Schedule a Confidential Consultation With a Bronx Real Estate Attorney

A real estate lawyer can help you avoid the risk of losing your earnest money in a real estate transaction.  Contact Cavallo & Cavallo in the Bronx, New York to set up a consultation.

Source:

investopedia.com/terms/e/earnest-money.asp#:~:text=The%20good%20news%20for%20buyers,get%20their%20earnest%20money%20back.