Providing a Good Faith Deposit When Buying a House
How serious are you as a home buyer? How would the seller know that you are indeed serious with being the next owner of the property being sold? One way of this being addressed is through the good faith deposit. Others refer to this as the earnest money or deposit.
The good faith deposit is a fragment of the total purchase price which you give to the seller as a way of showing that you are earnest or serious with your intention of owning the house he or she is selling. You should not confuse this amount with the down payment. Although both amounts can be taken less of the purchase price, they are still different. The deposit is more of a legal amount which sellers require while the earnest or good faith deposit is an amount inclined more to being part of real estate practices.
How much is it?
The usual amount to this is between 1% to 3% of the total purchase price. However, practices have accustomed buyers to making anywhere between $500 to $1000 of the price. This amount doesn’t make sense for big prices.
The low-ball offer of $500 will usually leave an impression of being unserious as compared to amounts that truly fall to at least 3% of the price which in turn sends stronger signal that you are more serious of the purchase.
It might be better to make the amount not to low but not too high. Do not go out of these borders and you are in a good range already.
How about taking back my deposit?
Generally, this amount is forfeited to the side of the seller in case buyer backs out. But the buyer can turn tides and have his deposit back under certain circumstances.
One such circumstance is if the seller rejects the buyer’s offer. Although, you have made the good faith deposit, the offer being rejected gives yu the right to take your money back.
There are circumstances that need to be stipulated under the purchase agreement. For instance, if the seller refuses to undertake repairs which may be recommended during house inspection. The buyer can also take the deposit back if flaws are uncovered.
The earnest money or the good faith deposit is somehow standardized. The usual amount depends on which state or which area you are going to make the home purchase. But as a rule of thumb or as advice of sort, don’t give an earnest money usual than the average if you really want the house because you’re in the risk of being rejected. Don’t make an offer higher than the usual too because you might end up losing a big amount shall you decide to back out.