What does earnest money mean? If you’re a first-time home buyer in Ocala, you might be unfamiliar with the term and what it means in the buying process.
In this post, our realtors at Your Home Sold Guaranteed Realty - Coldwell Real Estate Services will discuss what earnest money is and answer some common questions buyers have about it.
Key Takeaways:
- Earnest money is a sum of money that you’ll pay to the seller to demonstrate you’re serious about purchasing their home.
- On average, the earnest money deposit is between 1% to 3% of the home’s asking price, though it can be as high as 10% in some situations.
- Earnest money is usually paid after the purchase agreement is signed by both parties. At that point, the money is deposited into an escrow account held by a title company or attorney.
What Does Earnest Money Mean?
Earnest money is a sum of money that you’ll pay to the seller to demonstrate you’re serious about purchasing their home. It shows you’re committed to the purchase and won’t back out of the deal for no reason.
The earnest money deposit is similar to a security deposit in the sense that you’ll get it back at the end of the transaction as long as you don’t break any contract terms in the purchase agreement or miss key deadlines.
How Much Does the Earnest Money Deposit Cost?
The amount of earnest money you’ll pay varies depending on several factors, including:
- Local market conditions
- The price of the home
- How much competition the home has from other buyers
- The condition of the home– a new construction home will have a higher deposit amount than a fixer-upper.
On average, the earnest money deposit is between 1% to 3% of the home’s asking price, though it can be as high as 10% in some situations. In Ocala, the median sale price of homes in recent months was $280,000. This means you can expect an average earnest money deposit to fall between $2,800 and $8,400.
Keep in mind that there is no fixed rule, and the specific earnest money amount can be negotiated between you and the seller.
When Do You Pay the Earnest Money Deposit?
Earnest money is usually paid after the purchase agreement is signed by both parties. At that point, the money is deposited into an escrow account held by a title company or attorney. The deposit will remain there until the end of the transaction, unless you or the seller violate a term or condition of the purchase agreement.
In some cases, the earnest money deposit can be submitted much earlier. If you’re going after a home that has heavy competition from other buyers, you can include the earnest money deposit along with your initial offer.
Who Keeps Earnest Money if the Deal Falls Through?
The purchase agreement you signed with the seller outlines the specific terms and conditions that must be met by both parties for the sale to proceed. If you or the seller violate any of these, the earnest money can be kept by one of the parties.
Some example situations where you would be able to cancel the contract and keep your earnest money deposit are:
- You don’t violate any terms of the purchase agreement, meet all relevant deadlines throughout the closing process, and the deal closes without any issues.
- The home fails to appraise for the asking price
- Major repairs are discovered during the home inspection and the seller failed to disclose them
- The seller decides to accept another offer
Some situations where you could lose your earnest money deposit are:
- If you didn’t get pre-approval beforehand and discover that you are unable to secure financing before the end of the mortgage contingency period defined in the purchase agreement
- Not completing the home inspection or appraisal by the required deadlines
- Backing out of the deal at the last minute for no justifiable reason
- Not showing up to closing
The exact conditions will depend on the terms negotiated and agreed upon in your purchase agreement with the seller.
What Happens to Earnest Money at Closing?
If the sale goes well and there are no issues, you’ll get the earnest money deposit back at closing. Most buyers choose to apply it toward their closing costs or down payment.
Our Team Makes it Risk-Free to Buy a Home in Ocala
By understanding the role of earnest money, you can navigate the real estate market with confidence. But if you still have questions, a professional realtor can help. At Your Home Sold Guaranteed Realty - Coldwell Real Estate Services, Scott Coldwell and our team have worked with thousands of home buyers in Ocala and North Central Florida.
Our experience, high-quality customer service, and in-depth knowledge of the local housing market are only some of the reasons we’re ranked as the top realtor in Ocala. In addition, we offer unique buyer guarantees that make the buying process risk-free, like our Buy it Back Guarantee.
To learn more about working with Your Home Sold Guaranteed Realty - Coldwell Real Estate Services to buy a house in Ocala or the surrounding areas, call 352-290-3512, or fill out the form on this page.
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