Bellingham Herald Logo

Common earnest-money deposit mistakes that some buyers make | Bellingham Herald

×
  • E-edition
  • Home
    • Customer Service
    • Mobile & Apps
    • About Us
    • Contact Us
    • Newsletters
    • News Tips
    • Share a Photo
  • Dealsaver

    • All News
    • Local
    • Crime
    • Databases
    • Northwest
    • Nation & World
    • Weird News
    • Local Elections
    • Videos
    • Galleries
    • Traffic Cams
    • Webcam
    • Reader Photos
    • Columnists
    • Rules of the Road
    • All Sports
    • Seahawks
    • Mariners
    • Outdoors
    • Colleges
    • Politics
    • Elections
    • All Business
    • National Business
    • All Entertainment
    • Calendar
    • Restaurants
    • Movie News & Reviews
    • Movie Showtimes
    • Celebrities
    • Comics
    • Puzzles & Games
    • Horoscopes
    • All Living
    • Celebrations
    • Food & Drink
    • Families
    • Primetime Seniors
    • All Opinion
    • Editorial Cartoons
    • Letters to the Editor
    • Local Obituaries
    • Submit an Obituary

  • Public Notices
  • Cars
  • Jobs
  • Moonlighting
  • Homes
  • Classifieds
  • Place An Ad
  • Mobile & Apps

Business

Common earnest-money deposit mistakes that some buyers make

David W. Myers

Cowles Syndicate Inc.

    ORDER REPRINT →

March 05, 2017 06:00 AM

DEAR MR. MYERS: The housing market in our area is pretty hot, with most sellers getting multiple offers. We made an offer to buy a house with a $10,000 earnest-money deposit, and the seller agreed to accept it, provided we cancel our loan contingency. This doesn’t seem like a deal-breaker because we already are pre-approved for the mortgage. Should we go ahead and agree to drop the contingency?

ANSWER: No, don’t even think about deleting the loan-contingency clause that you wisely included in your original offer. It’s one of the most common mistakes that buyers make, especially when they fall in love with a property in an area where homes are selling faster than an Indy car can race.

A February report by the National Association of Realtors polled several sales agents and lenders about the biggest earnest-money deposit mistakes that buyers make. I’m devoting this entire column to sharing those findings and offering some guidelines.

The first mistake is failing to understand what an earnest-money deposit, or EMD, actually is. It’s an upfront deposit that shows that you’re serious about completing the proposed sale.

SIGN UP

Sign Up and Save

Get six months of free digital access to The Bellingham Herald

SUBSCRIBE WITH GOOGLE

#ReadLocal

Most of the time, it’s an amount that’s equal to 1 or 2 percent of the purchase price. But today (especially in red-hot markets), it’s not unusual to see buyers offering a deposit that’s equal to five or even 10 percent of the sale price.

The EMD, sometimes called a “good-faith deposit,” typically is held by the seller’s broker, a title company or the closing attorney or escrow officer who will handle all the paperwork. It’s used as a credit toward the buyer’s down payment and closing costs.

Q: We’re definitely earnest about buying a particular house, so why is it a big deal if we agree to cancel our loan contingency?

A: The loan contingency will let you cancel the sale and get your deposit back if you can’t line up a mortgage to complete the transaction.

Savvy buyers always get pre-approved for a loan before they begin their house-hunting trek. But the bank can rescind its pre-approval for any number of reasons, from the sudden loss of a co-borrower’s job to a lowball appraisal that suggests that the buyers are paying too much for the target property.

If the pre-approval is canceled and there’s no loan contingency, the seller can keep some or all of the buyer’s EMD as compensation for the busted deal.

Q: I made an offer that included a loan contingency. The seller was OK with that, but he countered with an offer that includes a clause that states the deal must close by the 14th of next month. Would I lose my deposit if I can’t meet his closing deadline?

A: Yes, you could. Sellers often include a so-called timeliness clause in their counteroffers, usually because they’re buying a new home of their own and don’t want to get stuck with two monthly mortgage payments instead of one.

Check with your real estate agent or the company that will oversee the closing to determine whether the deal can realistically be completed by April 14. Remember that sales are at near-record levels in many parts of the nation, so transactions are taking longer to close: One or two hiccups along the way could push the closing back a week or more, which in turn could place your EMD at risk.

Q: I have checked out several bank-owned foreclosures in my area. All of them would require me to make a nonrefundable deposit. Is this typical?

A: Yes. Lenders don’t want to waste time on lookie-loos who think that they’re ready to purchase a foreclosure after watching a few television shows or attending a weekend seminar, so the nonrefundable EMD helps to ensure that only serious buyers will come forward.

It’s important to note that most bank-owned homes are sold on an “as-is” basis, meaning that you can’t cancel the sale and get your deposit back if problems are discovered after your purchase offer is accepted. So, make sure you have a professional home inspector check out the property before you sign on the dotted line.

Q: What happens if a buyer cancels a sales contract for a legitimate reason, such as a home inspection that turns up a lot of hidden defects, but the seller refuses to return the EMD?

A: When a real estate deal falls apart, both the buyer and the seller must sign a document that officially renders the original sale null and void. If the two sides can’t agree on the return of some or all of the deposit, the buyer can refuse to sign the cancellation agreement.

Such a refusal puts a cloud on the home’s title, essentially making it almost impossible for the seller to look for another buyer until the EMD problem is resolved. That’s a simple but powerful weapon that the buyer can use to get the deposit returned.

David W. Myers’ column is distributed by Cowles Syndicate Inc.

  Comments  

Videos

Fastest growing jobs in the United States through 2024

Alaska ferry system may cut some of its run to Bellingham

View More Video

Trending Stories

Single-car crash into tree kills 21-year-old woman along Mount Baker Highway

February 20, 2019 09:10 AM

Investigation shows Hohl fire may have started by ‘an intentional or careless act’

February 20, 2019 03:05 PM

After Monday’s flames, the search for answers in Hohl Feed & Seed fire begins

February 20, 2019 07:57 AM

With Alaska budget cuts looming, Bellingham could lose longtime ferry route

February 20, 2019 06:31 PM

PeaceHealth says north Whatcom needs medical services, so it will build a clinic here

February 20, 2019 11:17 AM

things to do

Read Next

The Latest: Smollett quiet after posting bond, leaving jail

Entertainment

The Latest: Smollett quiet after posting bond, leaving jail

The Associated Press

    ORDER REPRINT →

February 21, 2019 03:12 PM

"Empire" actor Jussie Smollett has been released from jail after posting bond. Smollett walked out of the Cook County jail in Chicago on Thursday about two hours after a hearing in which the judge set his bond at $100,000.

KEEP READING

Sign Up and Save

#ReadLocal

Get six months of free digital access to The Bellingham Herald

SUBSCRIBE WITH GOOGLE

MORE BUSINESS

Prosecutor: Actor gave detailed instructions for fake attack

Entertainment

Prosecutor: Actor gave detailed instructions for fake attack

February 21, 2019 02:49 PM
As cleanup from Monday’s fire starts winding down, Hohl Feed & Seed ponders next steps

Business

As cleanup from Monday’s fire starts winding down, Hohl Feed & Seed ponders next steps

February 21, 2019 05:00 AM
AP source: NBA, union forward talks on ending ‘one-and-done’

National Business

AP source: NBA, union forward talks on ending ‘one-and-done’

February 21, 2019 03:19 PM
Google to end forced arbitration for all worker disputes

Business

Google to end forced arbitration for all worker disputes

February 21, 2019 03:17 PM
Snowman pops up Vegas Strip as city sees rare winter weather

National Business

Snowman pops up Vegas Strip as city sees rare winter weather

February 21, 2019 03:13 PM

News

Denial letters: Thousands could lose La. Medicaid coverage

February 21, 2019 03:09 PM
Take Us With You

Real-time updates and all local stories you want right in the palm of your hand.

Icon for mobile apps

Bellingham Herald App

View Newsletters

Subscriptions
  • Start a Subscription
  • Subscriber Service
  • eEdition
  • Vacation Hold
  • Pay Your Bill
  • Rewards
Learn More
  • About Us
  • Contact Us
  • Newsletters
  • News in Education
  • Archives
Advertising
  • Information
  • Place a Classified
  • Place an Obituary
  • Place a Celebration
  • Local Deals
Copyright
Privacy Policy
Terms of Service


Back to Story