A good real estate agent knows the importance of escrows and earnest money and can always explain to you what these terms mean. Regardless of whether you choose to use an agent or do it on your own, you should be aware of what these are and how they influence you.
Understanding Escrow and Earnest Money – Real Estate 101 with Real Estate Broker Dino Alexander
This makes it easier for you to separate those who are not interested in buying from those who are. If both you and the potential buyer manage to iron out all issues during the negotiation process, the earnest money becomes part of the cost of buying the home. Earnest money is exactly what it sounds like. An earnest buyer means that he is serious about buying your home. If you are selling your home by owner, you don’t necessarily need earnest money, but it’s a smart idea.
In either case, it counts as part of the down payment, if one is required, or it goes toward closing costs. Remember that earnest money does not always bind a potential buyer.
A buyer has the right to get his money back if an issue arises during the home negotiation. If you don’t know how much earnest money to charge, you can check what the laws are in your state regarding that if any.
As the usual rule of thumb, at least 1% of the home’s value should be offered. Some real estate deals though have set amounts in place as the earnest money such as $1,000 to $2,000.
The supply and demand of the market can also impact the amount of earnest money required. You can’t spend the earnest money that you receive. You have to place that money in an escrow account until the home sale is finalized.
Escrow is basically the same thing as earnest money. It just means that it’s where the earnest money is. Escrow funds are kept by the person dictated by the laws of your state.
In some cases, it’s going to be the title company representative. It might be the company handling the closing or it could be a real estate attorney. This is known as third-party handling.
The purpose of this is to make sure that the transaction is completed and that the funds aren’t dispersed until it is. It protects both the seller and the buyer until all the documents are signed and the home changes ownership.
It’s a way of making sure that all the agreements or contingencies between the parties were met. If at the last moment, the buyer just decides he doesn’t want the house even though all his conditions or contingencies were met and breaks the deal, then the seller can be entitled to keep the escrow.
If you still have more questions about escrow or earnest money, or you are planning to sell or buy a real estate property in Hudson Valley, feel free to reach out to me here: thealluvion.com/dino and we can discuss your situation further!