Realtor Margaret Canfield Dispels Earnest-Money Misconceptions

According to a February 21, 2017, Realtor.com article, home buyers often make earnest-money deposit mistakes that come back to haunt them because they don’t fully understand what an earnest-money deposit is. “Earnest money is money that the buyer puts down with the offer to purchase, which displays to the seller they have a serious interest in the property,” said Margaret Canfield, broker with @properties. “Earnest money is a percentage of the offer to purchase price and it can vary per region. So if a buyer is writing an offer on a home and the sale price is $250,000, the earnest money placed with the contract is $5,000.”

Earnest money is collected by the listing agent, usually within three days of acceptance -- when the buyer and seller have come to terms on many areas of the offer to purchase. It is held in the listing brokerage’s trust account and is applied as a credit to the closing statement. “A down payment, on the other hand, applies to the mortgage and is separate and in addition to the earnest money,” added Canfield.

Furthermore, earnest money is typically returned when something occurs with the home inspection. “In most cases there is something so ‘in error’ that the buyer and seller agree to terminate the contract and sign to mutually cancel the agreement and return the earnest money,” noted Canfield.

The other time earnest money will be returned with no penalty is when the buyer is unable to obtain financing or something goes wrong during the financing process. Since most purchases are based on financing, there are dates and deadlines for all parties to adhere to regarding a pre-approval letter and the loan commitment.

“The agent is responsible for guiding the buyer and seller through all the dates and deadlines to meet all obligations to successfully close. The time that the earnest money is in jeopardy is when you are 'ready to close' and all the legal contract contingencies have been met and all of the sudden the buyer gets cold feet,” concluded Canfield. “Then the seller and the brokerage have the right to retain the earnest money as damages, which will involve attorneys as it is a legal process.”

About Margaret Canfield, @properties 

Margaret Canfield specializes in condominiums, townhomes, and single family homes on several lakes and/or associations that lend themselves to many styles of lake living. She is one of the top 20 out of 500 agents in Walworth County. The office is located at 880 W. Main Street, Lake Geneva, WI 53147.

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