What Is an Escrow Deposit?
An escrow or earnest money deposit is the norm when making an offer on a house. But many buyers ask me, how much should it be for, and who should hold the money? Here is what you need to know.
The escrow amount should be specified in your offer on a house to show the seller that you are serious about purchasing the home. Once the offer is accepted you must deposit the money within the timeframe specified in the contract, usually 3 days after accepted.
The escrow deposit is held by a third party, usually a title company, and it becomes part of the down payment, or is forfeited if you pull out of the deal for reasons other than those stipulated in the offer. A financing contingency is an example of the latter. If your offer was contingent on getting a loan, and you can't, you can cancel the contract and get your earnest money deposit back.
How Much Should You Deposit?
The size of the escrow deposit is up to you. Real estate agents will sometimes tell you it is this or that amount, or this or that percentage of the offering price. In reality, you can write the offer with a one dollar deposit if you wish, and the agent still has to present the offer.
Naturally, an offer with one dollar of earnest money may not be taken seriously, and the listing agent may even persuade the seller to reject your offer. It is a good idea to ask what the local norm is.
Who Gets the Earnest Money Deposit?
Never give your earnest money check to the seller. The last thing you want is a seller trying to keep your money after you pull out of a deal because of financing problems, termite infestations or other valid contingencies in your offer. In Central Florida, escrow deposit is usually deposit to a title company chosen by the seller who acts as an intermediary. In any case, always give your deposit to a third party to hold.
How Your Realtor May Protect You?
Things can happen, right? If you pull out of the deal for some unforeseen reason, not included in the contract, you'll lose your deposit. However, the seller could also sue you for additional damages or even force you to buy the home. In order to protect you, your Realtor will add contingencies in the contract indicating a period of time for home inspection and loan approval, in which you can pull out of the contract if you can’t get a loan or if you find unexpected defects in the property.