What is an earnest money deposit?

Are you wondering what is an earnest
money deposit? Well stay tuned because in today’s video I’m covering what it is,
where it goes and how you get it back if the purchase of the house does not go
through. Hi I’m Shira Adatto with Keller Williams
Beach Cities and I’m a Realtor here in the South Bay of Los Angeles and here on
my channel I cover all kinds of things about life in the South Bay so if
you want to keep up to date be sure to hit the subscribe button below. So first
off let’s dive into what it is. So you’re out shopping for a house and you decide
you want to write an offer. The deposit gets written into your offer as
a way of expressing to the seller that you’re serious about purchasing their
home. Generally the deposit is somewhere around 3% of the purchase price so if
you’re offering $500,000 in your offer then the earnest money deposit would be
$15,000 in this case. And really what it is is just a good-faith deposit to show
the seller that you’re serious, that you’ve got some skin in the game and
that you really want to purchase their house. Now if the seller has multiple
offers this could really work in your favor because if your deposit is higher
than some of the other offers they could look at your offer more favorably. So
that’s what the earnest money deposit is.. it’s basically just a good-faith deposit
showing the seller that you’re serious about purchasing the home and that
you’ve got some skin in the game. Now the sum that goes towards the deposit is
actually a part of your down payment so it’s not any additional funds that you
need to pay for the house so at the end of the escrow period when it comes time
to transfer funds to complete the purchase you would have to put your down
deposit your down payment, the sum of the earnest money deposit will be subtracted
from that down payment amount so it’s actually a sum of money that goes
towards the down payment not any additional money. And where does this
money sit during escrow? So if your offer is accepted you’ll be contacted by the
escrow officer and they will have you send via a wire transfer generally, I
guess in some cases you can deposit a cashier’s check, but in most cases wire
transfer. You’ll get sent secure instructions and you’ll have 3 business
days to deposit the earnest money into escrow and it will get held in escrow
until the until escrow is complete or there are some contingencies in place
that allow you to get the deposit back should your escrow fall through.
There are many contingencies that can be written in the offer.. I’m going to cover
the main ones. The first one would be the inspections and discovery period which
all days of the contingencies are always negotiable. If you want to make your
offer really attractive you can write your contingencies in for shorter
periods but in general the inspection contingency period is around 17 days and
this is your time to do your discovery around the house. So you’ll want to get a
title report to see if there are any liens on the house. This would be a reason that
you could pull out of the transaction and get your deposit back. Same thing
goes for inspections. You’re going to have a home inspection, you’re going to
have the foundation inspected, the plumbing, the roof, all kinds of systems
within the house. If there are any reasons that cause you to pause and not
want to purchase the house, this is what that contingency period is for. It allows
you to pull out of the transaction and get your earnest money deposit back. The
other contingencies that you would want to have in place would be Appraisal and
Loan. So all homes that are funded by a
mortgage will have an appraiser come out and appraise the house. If the purchase
price is not satisfactory to the appraiser and for some reason the seller is not willing to negotiate and you don’t want to add funds then
this would be one of the contingencies you have in place to pull out and get
your deposit back. And then the last one would be the loan contingency. So if
anything happens with the loan and the loan is not able to go through, you are
protected by by this contingency and you will be able to get your earnest
money deposit back. So I hope that explains what the earnest money deposit
is, how you are protected in getting it back and where it sits during escrow. If
you have any other questions of course please feel free to comment below and I
hope that this was helpful and thanks for watching!

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