William Pitt Sotheby's Int'l
Kristi Vaughan, William Pitt Sotheby's Int'l
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Why Do Buyers Provide A Deposit?

by Kristi Vaughan 02/18/2019

Have you heard the term “earnest money” but really aren’t sure what it means? Once you have found the perfect home and are all set to make an offer, there’s one more step that you need to take. That’s to make a deposit on the home you want to buy. This is known as an “earnest money deposit.”  


The Purpose Of The Deposit


The deposit shows the seller that you’re serious about buying the home. It’s a measure that allows the seller to have some faith in you as a buyer that you’re truly moving forward with your decision; you’re ready as a buyer to make the financial commitment. This deposit allows the deal to begin on a solid basis without much question. 


Is The Deposit Required Legally To Buy A Home?


From a seller’s perspective, a deposit keeps a buyer from changing their mind. If there is a significant amount of money involved, the seller sees the deposit as a way to keep the buyer locked in. This makes it easier for sellers to accept an offer. 


How Much Is Expected For An Earnest Money Deposit?


These deposits don’t quite have a standard amount. The general rule is that they range from 1% of the home price up to 5%. The more expensive of a home that’s being purchased, the larger the earnest money deposit should be. In some cases, the seller may even ask for a certain amount of a deposit to ensure that buyers are serious. How much money you pay at once is often negotiable. You may be able to pay part of the money at one time and the other part at a later date.


New Construction Can Require Large Deposits


New construction homes can require large earnest money deposits- up to half of the purchase price of the home. This is because the construction costs need to be paid upfront and the bank wants proof that the units being constructed with loan money are being sold to buyers who can pay for the home. 


New construction homes are often customized as well. It would be detrimental to a developer to make special changes to a home only for a buyer to walk away. 


Getting The Deposit Refunded


As with everything in real estate, you’ll have a contract. If you don’t follow the terms of the contract, you risk losing your earnest money deposit. Two main reasons for buyers to walk away are a flopped home inspection or financing that falls through. Read your contracts carefully. Sellers sometimes state that deposits are nonrefundable after a certain number of days. 


You need to be sure that you are covered as a buyer in the purchase and sales agreement. If you back out of a home purchase without good reason like a contingency included in the agreement) you could be out of luck when it comes to getting your deposit back.    



About the Author
Author

Kristi Vaughan

For all of the disruption in the real estate industry, one critical aspect will never change -- the need for a good, solid real estate agent with truly local knowledge who puts your interests first. Kristi is one of those agents. A real estate agent since early 2005, Kristi has built her business with the idea that if she serves her clients well, success will naturally follow. And it has. What this means for you is that Kristi is on top of it, whether it’s getting you into the newest homes to hit the market, knowing the staging and marketing trends to help show your home in the best light or keeping tabs on the myriad details of an individual transaction. If something needs doing to help you meet your real estate goals, Kristi is giving it her full personal attention. Aided, of course, by today’s technologies. “As the mother of millennials and a homeowner of a certain age myself, I have a sensitivity and respect for the needs of first-time homebuyers, down-sizing sellers and everyone in between,” says Kristi, adding, “I measure my success not by numbers and awards but by the satisfaction of my clients.” A top producer, Kristi has won numerous Bronze, Silver and Gold Awards and has been recognized for many years by Connecticut Magazine’s Five Star Program for excellent customer service. In addition to being a member of the National Association of Realtors, Connecticut Association of Realtors and Ridgefield Board of Realtors, Kristi is a Senior Real Estate Specialist, Accredited Buyer Representative and is e-Pro certified. She is fully trained and experienced in working with relocation clients from near and far. Give her a call.