The Definition of an Escrow Deposit and Why it’s Important when Buying a Home in South Florida.
Once you made an offer on a property and the seller has accepted your offer, you are officially under contract. That’s great news, but what’s next? The Escrow Deposit.
What’s an Escrow Deposit you ask? Your agent may have discussed the importance of putting an Earnest Money deposit into escrow during your initial conversation. In case you completely forgot what an Escrow Deposit (Earnest Money Deposit) is and why it is so important, we will enlighten you. Your Earnest Money Deposit is significant because it’s considered “skin in the game”; It’s Essentially a good faith gesture showing the Seller that you have serious intent of purchasing their property. In the eyes of the Seller and their Listing Agent (The Seller’s Real Estate Representative) The more serious you are, the larger amount of a deposit you’ll front.
How much do I need to put into Escrow when Buying a Home in South Florida?
The amount of money put into escrow is always negotiable but should be approached strategically. A higher Earnest Money deposit can even help win a bid if there are multiple offers on the same property. Other times, the seller may be willing decrease the price slightly if you make a larger deposit. In a real estate market where homes are sitting on the market longer, the seller may only require you to put down 1% or less as an earnest money deposit. In hot markets with high demand, the seller may ask for a higher deposit of 2-3% and sometimes even greater if you are financing. When purchasing properties with cash, sellers have higher escrow expectations of roughly 10-20% in South Florida, which is a common request. Listing Agents and Sellers are skeptical of Buyers that put small deposits down, with good reason.
Where does my Escrow Deposit go?
Once the Earnest Money is deposited, it is held by a third party (i.e. Real Estate Broker or Title Company) and cannot be moved or extracted without written consent from both the buyer and the seller. Your Deposit does not go directly to the Seller. Prior to closing, the Earnest Money deposit is applied to the balance of the down payment or closing costs.
Can I get my Earnest Deposit Back if the Deal falls through?
Your Earnest Money deposit is protected depending on the terms of the purchase agreement, which covers how a refund would be handled. Most of the time, standard contracts allow you to recover your earnest money deposit in a variety of situations (Problems with Property found during the inspection period, Appraisal problem that affects financing, financing issues, etc). There are specific Time frames that buyers must be aware of that affect an escrow refund. You should consult you Licensed Real Estate agent for more details regarding how your escrow deposit is protected.