Buying a home in Florida or elsewhere is not an easy process to complete. In fact, something could go wrong at any stage of the process. However, during this process, the buyer has various opportunities to ensure that he or she is not purchasing property that could cause more trouble than it is worth. Still, the seller needs some incentive to ensure that the prospective buyer is not wasting time, which is where earnest money comes in.
As the name suggests, earnest money shows that the buyer is acting in good faith, or that he or she earnestly wants to buy the property. The amount of earnest money that a potential buyer provides can depend on various factors including the total purchase amount for the property. A percentage of that total could be applied, or the seller may want a set amount.
The earnest money essentially holds a buyer’s place in the transaction while he or she ensures that the property is in acceptable condition. It is important to note that earnest money is not always refundable, so buyers may want to look for these details before making an earnest money deposit:
- Make sure the deposit is going into an escrow account held by a financial institution, real estate brokerage, legal firm or title company. The buyer should not make a deposit directly to the seller.
- Include contingencies in the purchase agreement indicating that the buyer will receive a refunded deposit if the sale does not go through for the listed reasons, such as the home not passing inspection or not appraising for the asking price.
- Fully understand the terms of the agreement and comply with those terms. If the buyer does not meet certain deadlines or otherwise violates a term of the contract, the earnest money deposit could be lost.
In many cases, earnest money can be thousands of dollars, so it is important to understand how to protect that deposit as a buyer. Fortunately, there are various ways to ensure that these funds are protected during the duration of the transaction, that the possibility of a refund exists and that the funds will go toward the down payment or closing costs of the sale. Individuals looking to buy a home in Florida will certainly want to ensure that their funds are not at risk.