When home buyers find the home of their dreams, they show their commitment or good faith to purchase the home to the sellers in the form of a monetary deposit known as an earnest money deposit (EMD).
- It is a negotiable amount, but typically 1%-3% of the purchase price or depending on market conditions in the area. In the state of Arizona, these funds are deposited and held with Title/Escrow company to be later used towards the down payment and closing costs. Title/Escrow are the neutral 3rd party entity that has duties to both buyer and seller. Title/Escrow are employed by both the buyer and seller.
- In a seller’s market, home owners may receive multiple offers and in order to stand out from the crowd, buyers may have to bump their EMD to 5%+.
- But beware, the buyer better be sure their desires to purchase the home is strong. If the buyer is in breach of the contract, they may lose all or part of their EMD.
- Never remove buyer loan or appraisal contingencies. These are safety nets. What if your loan falls apart, you may have just lost your EMD. Or the home does not appraise at value. Other forms of contingencies can be that the home is uninsurable, cloud on the title, home inspection issues, HOA, CCR (covenants, conditions &restrictions), Seller’s Property Disclosure & Statement (SPDS), disapproval of Insurance Claim History.
- Don’t miss contract deadlines. Be sure of when you need documents to be signed and delivered by. And know exactly when you can actually cancel a purchase contract. Your REALTOR® should keep you on track with this.
- Don’t impulse buy. If you walk away from the transaction for a reason not written in the purchase agreement, you will lose your EMD.
Basically, don’t breach the contract.