Earnest Money: "Money given by a buyer to a seller to bind a contract."
Q: What is earnest money?
A: When a buyer makes an offer to purchase real estate in the Vancouver, Washington area with a purchase and sale contract (**Washington State Legal Form 21) there is a provision for “earnest money.”
This money is sometimes referred to as a deposit and it represents the buyer’s “good intentions” to proceed with the purchase of the home.
Generally the earnest money given is about 1% to 3% of the agreed-upon purchase price. In this competitive home-buying environment in the Vancouver, Washington area, the more the earnest money, the more attractive the offer will be.
Earnest money is generally held in an escrow account with the title company, but it could also be held by the selling broker's firm.
The buyer must deposit earnest money, or give it to the selling broker, within 2 days after mutual acceptance of the purchase and sale agreement. Failure to make the earnest money deposit is a breach of contract and could render the contract null and void.
Earnest money is applied to the purchase price as a credit to the buyer at closing unless otherwise stipulated in the purchase and sale agreement.
Q: What happens to earnest money if the real estate transaction falls through?
A: It depends….
It depends on why the transaction fell through.
Form 21 from the NW Multiple Listing Service stipulates that if there is no “legal excuse” for the buyer to fail to complete the transaction then the earnest money is forfeited.
Q: What is a legal excuse?
A: A legal excuse is something that is no fault of the buyer. For instance, the buyer cannot get the agreed-upon financing stipulated in the Financing addendum (**Washington State Legal Form 22A) though the buyer “earnestly” tried.
A legal excuse might also be that the inspection came back with recommended repairs and the buyer and seller could not come to terms with remedies.
A legal excuse could also be a low appraisal or the seller is unable to provide free and clear title.
There are a myriad of legal reasons a transaction may fall through.
Cold feet, however, is not a legal excuse and could result in the forfeiture of earnest money.
If you are ready to find the perfect home worthy of your earnest money, contact us here and we’ll help you with the treasure hunt! It’s fun! You gotta get in on the fun!!
You might be interested in this little factoid:
Ron and Sherry Patterson
**Forms referred to are provided by the NW Multiple Listing Service.