3 things you need to know about earnest money-one of the most important and most misunderstood parts of buying a home.

In a perfect world home buyers and sellers would shake hands on a deal and meet at the closing table to close the deal.  The real world is not that simple.  Earnest money is a sign of the buyer’s “good faith” to follow through with the purchase contract. By and large sellers in the greater Cincinnati don’t demand high earnest money deposits from potential buyers. (Of course there are always exceptions.)

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Buyers (and sellers) need to understand the basics of “earnest money” so they don’t lose money or worse.

1. Earnest money requirements are spelled out in the purchase contract.
   

   Example of earnest money clause in purchase contract

   The first mistake a buyer can make is not reading the contract clause covering earnest money in order to understand how the check is handled.  The earnest money check is immediately cashed and deposited into the real estate broker’s trust account.  Some buyers assume the check is “held” until closing and don’t have sufficient funds to cover the check.  By law- checks are deposited within a fairly short time frame.

2. Some buyers decide for whatever reasons just get cold feet and try back out of their purchase contract and assume their earnest money deposit will be returned.  Read the clause in the contract- in order for the earnest money to be returned both the buyer and seller need to sign the form releasing the earnest money.  Not all sellers are willing to sign earnest money releases for no reason.  If sellers won’t release the money, buyers can pursue the funds through the court system.  In Ohio, after 2 years in the trust account brokers are allowed to return the funds to the buyer (of course there are some stipulations and exceptions -so read your purchase contract)
3. The purchase contract spells out time frames, dates, requirements which the buyers and sellers are expected to meet. Buyers (and sellers) who ignore cut off dates for inspections, financing and document reviews find themselves between a rock and a cliff as the time to negotiate for repairs or details has already expired.   If you need more time to complete inspections or anything – always “get it in writing” from the seller.  Don’t make the mistake of assuming sellers who agree to release you from the purchase contract because of missed dates will also agree to sign forms releasing earnest money.

The majority of the real estate deals in greater Cincinnati get to the closing table.  When it comes to earnest money buyers need to remain vigilant and never assume the deposit is automatically returned prior to closing.  And both buyers and sellers should always consult with their attorney prior to “walking away” of any type of legal contract.