There are a lot of things that go into putting together a successful offer to purchase property in the Northern Virginia real estate market. One aspect, the importance of which is often overlooked, is the Earnest Money.
In Virginia, an offer to purchase a home or land requires consideration. This is called Earnest Money in our contract. This consideration is an amount, selected by the buyer, that demonstrates to the seller the buyer's intent to follow the contract through to settlement.
My clients often ask me 'how much' Earnest Money is expected.
There is no set answer.
I have read about percentages of sales price, but in my experience, it is more about the amount being significant enough for the seller to believe that the buyer won't walk away. The higher the listing price, the higher the amount the seller will expect. It is not uncommon for the Earnest Money amount to be part of the negotiations.
For example, a seller may be willing to go down a bit on the sales price if the buyer is willing to put up more Earnest Money. It is, obviously, in the buyer's interest to keep the amount as low as the seller is willing to accept, but still have it be significant enough that it shows solid intent.
Earnest Money is not deposited until the contract is 'ratified,' (ie. all parties sign and agree upon all parts of the contract). Once the contract is ratified, the Earnest Money is deposited into an escrow account held by the party specified in the contract to hold the money. At closing, it is applied toward the buyer's down payment and/or settlement costs.
The Earnest Money is not 'at risk' until all of the contract contingencies have been removed. It can be returned to the buyer, with no penalty, if a contract is voided due to failure to remove a contingency that results in a contract void. Once the contract is 'non-contingent,' however, the buyer must close on the property or risk losing the Earnest Money to the seller.
The Earnest Money must be cash-on-hand at the time the contract is written. The buyer cannot write a contract and 'save-up,' during the contract period. This money must be deposited, by law, within a certain amount of time after the contract is ratified. There is a provision in the contract that allows delivery after the fact, but it is measured in days--not weeks or months--and the check must be able to be immediately deposited (no writing a check without the funds to back it up allowed).
Understanding all aspects of putting together a contract, including determining the Earnest Money amount, is important to successfully purchasing your new home!
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