by Paul Slaybaugh | Dec 14, 2014 | Home Buying, Scottsdale Real Estate
Earnest money.
You’ve heard about it, been asked for it; you may have even written a check for it. What exactly is earnest money, though, and why do you need it when you buy a house?
Earnest Money FAQ
When buying (or leasing) a home in Scottsdale, you will be asked to put up a good faith deposit to secure your position in the transaction. This consideration is known as an earnest deposit.
Earnest deposit amounts are negotiable. The amount of the deposit is one of the terms of the purchase agreement over which buyers and sellers may haggle. In my experience, a typical earnest deposit on a resale transaction is approximately 1-2% of the total sales price. Builders may require higher deposit amounts for brand new construction (largely due to the costs incurred to build your home). Banks may also require more on REO/foreclosure properties (because they are the spawn of Satan).
If you are following the standard boilerplate terms of the current AAR (Arizona Association of Realtors) purchase agreement, your earnest deposit is due upon the agreement being accepted and signed by all parties.
In nearly all cases, your earnest funds will be held by an escrow company, the neutral third party responsible for transferring ownership from the seller to the buyer. The company employed to hold these funds is another term of the purchase agreement that you negotiate with the seller. Earnest money can also be held in the trust account of one of the Real Estate brokers involved in the transaction, but this eventuality is primarily restricted to the rental arena these days. If you are buying a house, you can pretty much take it to the bank that you will be dealing with an escrow company.
- Is This Extra Money That I Have to Pay in Addition to My Down Payment and Closing Costs?
This is a common misconception. The answer is no, this is not “extra money” that you are being charged. It is a portion of your total closing funds that is simply due up front. Upon closing, your earnest deposit will be applied towards your down payment and/or closing fees.
Typically, a personal check made payable to the chosen escrow company will suffice, though some opt to wire funds to the escrow company instead.
- Can I Get My Earnest Deposit Back?
This is a loaded question, but yes, there are scenarios in which you can typically retrieve your earnest deposit. Assuming you negotiated the sale using the current AAR purchase agreement, you do have a few outs. First, you have an inspection period (usually 10 days, but negotiable). If you are not satisfied with the condition of the property, or the seller refuses your repair demands, you can withdraw from the transaction and have your earnest money refunded. Of course, this presumes that you have not agreed to any changes in the standard terms of the contract (such as purchasing “as is”, agreeing to non-refundable earnest money, etc).
Under the standard provisions of the contract, you can also get your earnest money back if your loan is declined (after your diligent effort to obtain one under the stated terms) or the home doesn’t appraise for the purchase price (unless you are paying cash as there is no appraisal/financing contingencies to fall back on). Once again, though, and I can’t stress this enough, the terms you negotiate with the seller can alter these provisions.
- What If My Deposit Turns Out to Be More Than I Owe at Closing?
Let’s say that you are employing a 100% financing vehicle, like a VA loan. Let’s also say the seller has agreed to pay for the majority of your closing costs. If the remaining costs owed by you at closing are exceeded by your initial earnest deposit, you are entitled to a refund of the excess deposit.
- Can I Lose My Earnest Deposit
Yes, you most certainly can forfeit your earnest deposit. As the purpose of this deposit is to demonstrate good faith to the seller and invest you in the successful completion of the transaction, your deposit can be forfeited to the seller as damages if you breach the agreement. Failure to close escrow, or backing out of the deal for any reason other than allowed for by a contingency to the agreement, is a surefire way to kiss your deposit goodbye. In the event that you wish to cancel a transaction, be sure to carefully review the terms of your contract with an attorney.
- Who Decides If the Buyer or Seller Gets the Earnest Money if There is a Dispute?
The escrow company that holds the deposit is charged with interpreting the terms of the contract, and has the authority to release the deposit to the party deemed NOT to be in breach of the agreement. Say you, as the buyer, decide that you aren’t comfortable with the neighborhood’s governing covenant’s, codes and restrictions (CCRs). You inform the escrow company (in writing) of your wish to cancel the transaction. The seller objects, claiming that you did not exercise your right to cancel in a timely fashion. You had 5 days from the receipt of those documents to withdraw from the purchase contract, but did not inform the escrow company of your intentions until day 7. Therefore, the escrow company decides in the seller’s favor, and releases the earnest money to him/her as liquidated damages for your breach of the agreement.
Have any additional questions regarding the role of earnest money in a Real Estate transaction? Ask away in the comment section below (or shoot me a private message if you prefer) and I will do my best to address them.
Disclaimer
* It should go without saying that the above is not intended as legal advice. The general explanations may not directly apply to you. As every purchase contract is unique, the internet is not a reliable source for answers to questions regarding your specific agreement. Consult with your agent and/or attorney PRIOR to the execution of your purchase contract to fully understand the terms and protections afforded you.
by Paul Slaybaugh | Dec 11, 2014 | This & That
“I don’t recall the Pontiac being there.”
Sid Gustafson took in the back end of the forest green automobile that jutted out of the modest mid-century ranch. He had closed the purchase on the home mere hours earlier.
The car occupied the space in the living room’s exterior wall where a large picture window had formerly resided. Remnants from the surrounding brick littered the planter box below, dusting the remains of a lantana hedge in terracotta. Glass stalactites dangled precariously from the top of the demolished window, eager to avenge their fallen brethren.
His wife, Nancy, did not respond, but her sharp intake of breath confirmed that he was not alone in his recollection. Sid scanned the license plate that clung to the rear fender by one twisted screw.
“Warp speed,” he interpreted with a dry chuckle. He turned to Nancy, but she lifted a trembling finger to stifle the welling joke. Grudgingly, he let it pass.
“So,” he tried again after a moment of tense silence. “Do you think this is a home or auto claim?”
“Call Adam,” Nancy commanded, her icy voice scarcely more than a whisper.
“Let’s just see-” Sid began to reply before being cut short.
“Now!” Nancy hissed, rounding on him with nostrils flared and murder in the cobalt eyes that lay coiled beneath tight curls of snow white hair.
The crisp autumn air carried on it the chemical smell of burned plastic. Sid was halfway convinced that the barrel fire blazing within his significant other, rather than the smoldering wreckage behind her, was responsible for it.
He removed his cell phone from the front pocket of his jeans, flipped it open, and dialed their real estate agent without further argument.
“Don’t tell me what to do,” Sid mumbled in practiced response to the automated voice that told him to enjoy the playback music before his party was reached. His Realtor’s genial answer came midway through the well-traveled chorus of Paradise City by Guns and Roses. Unfortunately, it was just his canned message assuring Sid of the importance of his call.
“Adam, it’s Sid,” he said after the beep. “We’ve got a problem here.”
He braved a sideways glance at his wife. Somehow, she seemed to have swelled well beyond her sub five foot frame. Malice alone put her nearly eyeball to eyeball with Sid’s stooped six feet and two inches.
“Someone’s in my parking spot,” Sid finished. “Call me back.”
There was a sudden change to the ozone as everything stopped for a moment, a perfect, unnatural stillness cast over the world. Then Nancy exploded.
“Everything is funny to you, isn’t it,” she demanded. “Just one big running joke!”
“Well, guess what, mister comedian,” she continued. “I don’t think it’s funny.”
Sid retracted from the verbal battering to come, an aged hand thick as an oven glove reflexively rising to ward off the blows.
“I didn’t think it was funny when you introduced me at the first office Christmas party as your naughty secretary! I didn’t think it was funny when you told Helen’s third grade teacher that I wouldn’t let her attend the field trip to the dairy farm because I am lactose intolerant!”
“Honey,” Sid pleaded. “This is ancient hist-”
“I didn’t think it was funny,” Nancy interrupted, her face a pleated crimson mask, “when you told everyone that I was just carb loading when I was six months pregnant with Isaac!”
The beginnings of a smile tugged at the corners of Sid’s mouth, but he beat it back before it could materialize into the death sentence it was sure to be.
“I didn’t think it was funny that time you interrupted my bridge group to ask if your speedo made you look fat.”
At this, Sid did smile. He laughed, in fact. A deep, bellowing laugh, unravaged by time, that had won Nancy over so many years ago.
“I didn’t think it was funny when you asked the bishop if he was a boxers or briefs man.”
A slight smile betrayed her, however. The angry maze of wrinkles began to disband, reestablishing itself along the deeper grooves of her laugh lines.
“I really don’t think it’s funny that there’s a car sticking out of our new house.”
Now, Helen was closing her eyes and shaking her head. Staying angry at her lovable goof of a husband was like cursing the tides. He was who he was. In truth, she was mad at herself. She was the de facto iron fist, responsible for steering their ship when Sid, the drunken captain, inevitably fell asleep at the wheel. It had been an unusually hectic week. Things that she would ordinarily never miss, got missed. And here they were.
“And I really, really don’t think it’s funny that you forgot about the final walkthrough that you promised to do before we signed the closing papers.”
Sid pulled her close and held her tight. Resigned, her breath came slow and steady against his chest.
“What are we going to do,” Nancy whispered.
The phone rang.
Sid answered on the second ring, interrupting the vaguely robotic factory-programmed tone from 2006 that he had never bothered to reset.
“Hi Adam,” he responded without checking the caller ID. The only other person who ever called him at this number was standing next to him.
“About that home warranty policy the seller bought for us …”
“Does it include windows?”
by Paul Slaybaugh | Dec 6, 2014 | This & That
Leaning back in a black leather swivel chair while he pondered the day ahead, Jimmy Dietz closed his eyes against the rising glare from the room’s only window. For perhaps the millionth time, he cursed his decision to select the only bedroom in the house with eastern exposure for his home office. That had been the whole point, of course, to leverage the insistent sun as a secondary alarm clock, this one to force his weary mind to catch up to his body’s head start.
He was tempted to steal another glance at the clock, but knew it would only bring disappointment. It would be at least another five or ten minutes before the sun would rise above this petty torture and continue its ascent towards a more fitting celestial perch.
He did cautiously open his eyes, however, when a familiar buzzing cut through his silent lamentation. Grimacing against the opportunistic sunlight, he took in the sight of his shuddering iPhone as it vibrated on the desktop. He reached for it, half expecting to feel the sting of an angry electrical bee when his slender fingers closed around its cool metal housing.
“This is Jimmy,” he informed the caller.
“Hello,” he tried again when he received no answer. “This is Jimmy.”
Still no one. He removed the phone from his ear and looked at it, realizing his mistake. He was talking to a text message notification. He tapped the prompt on the screen to view.
CALL ME, the message read.
Jimmy recognized the number as belonging to an agent he had worked with on a rental transaction the previous month. It was burned into his memory by the scores of similar messages he had received in the ensuing weeks.
The phone jumped in his hand.
ITS URGENT, A new message assured him.
911, another added for good measure.
Here’s a thought, Jimmy seethed. Why don’t YOU call ME?
Resisting the urge building up within him, Jimmy instead began to slowly count to ten. Just as the throbbing in his carotid artery started to ease, his phone buzzed again.
“Seven,” he breathed in disgust as anger flooded his happy place before he had the chance to find it.
ITS STEVE WILLITS WITH DESERT DOMICILES RLTY
“You don’t say,” Jimmy hissed at the empty room.
RE 8539 E. RAVINE PKWY
Jimmy stared at the screen, incredulous as a series of messages came through in rapid succession.
TENANT SET OFF ALARM
DOESNT RMEMBR CODE
DOG BARKING AT ALARM
POLICE HERE
WONT GO IN BC OF DOG
Jimmy began to laugh.
R U THREE?
*THERE*
Jimmy laughed even harder. For the life of him, he didn’t understand the younger generation. How could anyone in sales prefer one way communication to an actual dialogue with a real, live human? How was anyone supposed to hash out anything of consequence one line at a time?
Then again, he thought, maybe he was the idiot. Why use a perfectly good texting device to make something as antiquated as a phone call? The other party might not go along with whatever I have to say.
DOG JUST BIT A COP!!!
Not for the first time, he wondered how much longer he was for the business.
WHY WONT YOU ANSWER???!!!!
Smiling, Jimmy relented. Out of practice with the virtual keyboard, it took three minutes for his thumbs to find the right sequence of characters. Breaking the apparent protocol, he scanned his message for grammatical errors. He swore as another message came across in the interim, interrupting him.
WELL????!!!
He pressed send.
Because this is Pizza Hut, asshole.
A response came back in seconds.
THS FUNNY 2 U?!
No. Jimmy replied, quicker this time. You’re right. This is serious.
No response. Jimmy’s smile broadened as he pictured his counterpart staring intently at his phone, eagerly anticipating the forthcoming assurance that helicopters would scramble and the world would stop until this latest fiasco was resolved by anyone other than himself.
He lingered for a moment, savoring the new aroma of freshly brewed coffee that emanated from the adjoining kitchen as he gave that expectation room to grow.
Satisfied, Jimmy finally began typing.
He realized that the sun was no longer in his eyes. He relaxed his defensive squint, his hazel eyes rounding into their usual mischievous shape. He scanned his message for errors and pressed send. He then placed the phone on the desk, stood, and strode out of the room in search of caffeinated goodness.
On the desk, the phone remained momentarily illuminated, briefly displaying the sent message.
No pets allowed. Eviction proceedings started.
The screen went dark.
Moments later, in the empty room, the phone began to ring.
by Paul Slaybaugh | Jun 14, 2014 | Promotions
You Are Invited!
Please join us this Saturday and Sunday (6/14 & 6/15) between 1-5 PM at 8210 E. Del Claro Dr in McCormick Ranch. David Levy with Realty Executives will be holding open one of the finest properties in the premier Island at McCormick Ranch subdivision. Fully remodeled and within a short walk to Lake Margherite, Lake Nino and Lake Angela, this is the one you’ve been waiting for! Hope to see you there.
by Paul Slaybaugh | Jun 6, 2014 | Promotions, Scottsdale, Scottsdale Real Estate
You Are Invited!
Please join us between 1-5 PM this Saturday and Sunday (June 7th & 8th) for an open house at 8210 E. Del Claro Drive in McCormick Ranch.
Featuring 4 bedrooms (plus office), 3 baths, swimming pool, 3 car garage, and over 2600 sq ft of exquisite modern remodeling, this may be your one and only chance to see it before it’s gone!
MLS# 5123529
Offered for sale at $699,500
When: June 7th & 8th, 1-5 PM
Where: 8210 E. Del Claro Dr, Scottsdale, AZ 85258
Who: Hosted by David Levy, Realty Executives
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