What is a Good Faith Deposit in Real Estate?
When it comes to purchasing a home in Columbus there are many standard practices that a Columbus homeowner may go through and maybe some non-standard ones as well (almost anything can happen in today's constantly changing housing market).
One of those standard practices is paying earnest money after making a purchase offer, having it accepted by the home seller, and then entering into a purchase contract. This is also referred to as making a Good Faith Deposit.
What is a Good Faith Deposit?
A good faith deposit is a term used to describe earnest money. Earnest money is money from the homebuyer put down in "good faith" that they plan to follow through with the purchase of the home. It helps to communicate that they are serious about the home sale and are willing to take the risk of losing their money if they back out of their purchase offer for any reason other than those covered in and agreed upon in the mutual purchase contract signed by both the buying and selling party.
The amount of money paid as earnest money is set by the homebuyer. Often a buyer will stick with a standard amount advised by a real estate agent. In some cases, a buyer may offer more than the expedited amount to make their offer more intriguing in a multiple-offer situation.
When earnest money is provided by the potential home buyer it is placed in an escrow account and managed by either the title company, listing agent, or an attorney for safekeeping. This money will later go toward cash owed by the purchasing party at closing including a down payment and closing costs.
Is Earnest Money Mandatory to Make a Home Offer?
In many places, earnest money/a good faith deposit is not legally required to make an offer on a home. But it is very common practice and may be expected from some home sellers. They might not take your offer seriously without something to back up your offer.
Not offering a good faith deposit may get your offer rejected on the purchase of a home in Columbus especially in a buyers' market with low inventory. A good faith deposit is a great way to back up your purchase offer and shows that you are willing to put your own personal money forward to be held until you make good on your promise.
When is Earnest Money Refundable?
Earnest money is not a deposit that the buyer will never see again. The buyer will be able to put the money toward cash owed on the purchase when finalizing the sale. But if the buyer does not go through with the purchase there are some areas that allow the buyer to receive this large sum of cash back.
Scenarios where a potential buyer can walk away from the purchase and take their earnest money with them include, anything covered in the purchase contract. Most often this is in the case that a contingency is not met. This can be a home appraisal not meeting the right amount or an inspection revealing damage the buyer does not want to take on.
Another common reason to receive earnest money back without buying the home is the inability to secure a mortgage loan to be able to purchase the home. If the buyer backs out of the offer without a contracted contingency to cover it the earnest money goes directly to the seller as a fee for taking their home off the market.
If you are looking to purchase a home in the Columbus area please contact us any time.