What is an Earnest Money Deposit?
Purchasing real estate does not need to be complicated. And it should not be expensive. Let us introduce you to Homsby, a virtual real estate brokerage that’s boldly changing the status quo. We provide homebuyers, like you, the support and services you need and want, for a flat fee. At close, we collect the commission your traditional buyers’ agent would be paid, we subtract our flat fee, and then refund you what is left over. Sound too good to be true. It’s not.
Earnest Money Deposit, explained.
Earnest Money Deposit, also known as an Escrow Deposit, is the sum of money the Buyer is willing to put up as good faith to begin escrow. The amount offered by the Buyer typically ranges 1%-3% of the purchase price, but can sometimes just be a flat amount between $5k and $20k. The Earnest Money Deposit is normally defined within the contract to be due within 3-5 business days of mutual acceptance of contract. Part of a Buyers' initial responsibilities after opening escrow is to get the Earnest Money Deposit into the Closing/Escrow Officers possession so they can hold it in the Escrow Account. The Earnest Money Deposit is usually only accepted via the following forms: certified check, personal check or wire transfer, with the latter being the most common. The action of completing the deposit shows Buyer credibility to the Seller.
In some occasions, especially those transactions with large purchase prices, a Buyer will break the initial earnest money into two separate deposits defined to be due at separate times. Typically, the first deposit will be for 1.5% of the purchase price and be due within the first 3-5 business days of mutual acceptance. The Buyer will incorporate a second deposit in the amount of another 1.5% of the purchase price that will be due within a specified number of days of mutual acceptance or upon a specific action having been taken like the written removal of a contingency. The action to make the second deposit is a form of confirmation that the Buyer is fully committed to closing the transaction within the defined periods of time in the purchase contract.
Upon closing, the Buyers Earnest Money Deposit held in the escrow account will reduce the amount of money the Buyer needs to bring to the closing table to cover their Down Payment plus Closing Costs, unless otherwise specified to be returned.
A Buyer should understand the intent of the Earnest Money Deposit is to show good faith in pursuing their obligations defined in the contract. Part of these obligations are to act and notify the Seller in a timely manner should material information be discovered that changes the Buyers intent to proceed with the transaction. Homsby is built to make sure the Buyer makes timely decisions and takes the appropriate actions required to always protect their deposit from being forfeited, especially when that means Cancelling the Transaction. Schedule a call with a Homsby agent to see all the ways our buyer focused technology protects you, the homebuyer, and puts your interests first.
WIRE FRAUD - Awareness that needs to be shared.
Most homebuyers will choose to make their earnest money deposit via wire transfer because it is efficient and timely. Knowing the steps to take to protect your yourself from wire fraud is also key in making sure the transfer happens smoothly. Follow these steps to protect yourself:
- Request your escrow officer to send wire instructions via secure email
- Once received, pick up the phone and call the escrow company to confirm the instruction details with someone other than the individual who sent them. If there is any hesitation or discrepancy, go back to the escrow officer to for an explanation and to start over before proceeding to send any money.
- Once instructions are confirmed, you will want to setup the wire with your banking institution. Most national banks will allow you to setup a wire online. If your bank does not have this feature available, you will have to physically go in to establish a wire.
- Be sure to confirm the information entered for the wire is correct. Regardless of how you setup the wire, online or physical, be sure the information entered matches the instructions perfectly. Have a second person affiliated with the bank confirm the details. If entering details online, call the customer service number after entering the wire details to confirm the instructions. They have established processes in place to confirm these details.
Following these simple instructions can help prevent errors in sending your money to the incorrect account.
The Homsby Timeline has step by step guidance to help you through this part of your transaction to be sure you do it correctly. If you choose to work with our preferred Title Service Provider Spruce, we have placed security controls and the ability to make this transfer according to the industries safest and most current practice standards.