This blog is a continuation of last month’s blog about due diligence but is not intended to give legal advice. Each state has different real estate laws and throughout Louisiana, rules and customs can vary among parishes and regions. If you’re thinking of buying or selling a home, please check with your local Real Estate professional or Real Estate Attorney on the specifics of all Real Estate matters.
There are dozens of reasons to back out of a home purchase. Stumbling across a better house. Realizing your commute to work is going to be brutal. Discovering from the foundation repair company that there’s more to the damage than meets the eye. Your wife’s mother gets ill and you need more space to move her in with you. Or, as the date of your closing looms, you just simply change your mind.
Last month we talked about 5 things to expect after your offer is accepted <<link here>> and how to survive the waiting game we call the “Due Diligence” period.
There’s a short time frame when due diligence is over, the title search is complete, inspections are in, repairs have been settled and all that’s left is your lender’s paperwork for closing. It’s a time when most people cross their fingers into the finish line. But for those who find themselves experiencing doubts or issues, it’s a time when earnest money can get you out of buying the home.
Some fast facts about earnest money
- When you’re signing a contract to buy a home, you’re very likely going to negotiate a deposit called earnest money.
- Earnest money is also called a “good faith deposit” since it indicates you’re moving beyond home shopping and are truly interested in a valid home-buying contract.
- The amount of earnest money is most often a percentage of the cost, usually between 1% and 2% of the selling price of the house.
- Deposits go into a trust until closing and get applied to your down payment on the home at that time.
- Earnest money isn’t meant to go directly to the seller. It’s safest when put in escrow with a third-party title company (like Clean Title, LLC).
Earnest money can seem like just another big expense during your home buying process. But it’s extremely important and often for your protection.
- Proving to the seller that you’re serious about your offer
- It protects you if something is wrong with the property
- Protecting you if your life situation changes
- Also, it protects the seller if you simply want out of the deal
So let’s say you decide this sale isn’t for you.
It could be any of the reasons above. Or any reason at all. You simply agree to sacrifice your earnest money (and the due diligence funds) and walk away free and clear.
That funding acts as a reimbursement to the homeowner for time and trouble spent taking the house off the market and walking through the contract process with you. Since they’re now starting over listing their home, it’s only fair to help soften that financial blow.
You might feel horrible about losing such a large amount of money. But ask yourself one important question. Which makes more sense: to forfeit 2% of the cost of a home? Or to agree to take on 100% of the cost of a home you no longer want?
When you look at it that way, earnest money is cheap insurance.
At Clean Title, LLC, we’re happy to serve you during your home buying process and proud of our track record and the recommendations our clients have shared. (Check out some of our reviews on our Facebook page). Clean Title, LLC, is researching the past to protect your future!
Check out our home buyers’ Clean Title FAQs and reach out at 985-277-5095 anytime with questions!
Stay tuned next month where we talk about protecting yourself before closing and the all-important closing checklist on your new home!