You’ve finally found the house you love while scouring for real estate in Florida. You’re sure in your heart of hearts that this is the one, and you’ll be crushed if the deal falls through.
So, you decide to put your money where your mouth is with your earnest money deposit, thinking if you’re extra generous, you’ll have better luck with ensuring all goes your way.
That could be a big mistake.
An earnest money deposit, is essentially a show of good faith from the prospective buyer to the seller. It is proof that a buyer is committed to completing the sale. Earnest money is used as credit toward the down payment and closing costs.
It’s a great idea in theory, but the smallest mistake when making an earnest money deposit could cost you much more than you realize. At Grimaldi Law Firm, a leader in real estate law, estate planning and probate law in Hollywood, we work hard to ensure our clients never make mistakes that could end up working against them. It’s not only our job to keep the law on your side, but we are equally as passionate about keeping all your major real estate decisions well-informed and comfortable.
Here are some earnest money mistakes you will definitely want to avoid:
1. Not understanding the purpose of the earnest money deposit
As mentioned, this deposit, which is typically expected to be anywhere from 5-20% of the purchase price of the house, is used as proof that a buyer is planning to seal the deal.
2. Not putting enough of an earnest money deposit down
In a seller’s market, you’re going to want to be competitive with your earnest money deposit. Use this as an opportunity to impress your seller, get their attention, and show them you mean business. This may mean putting down more than 5% of the sale of the house –but hey, if you want the house that bad, it’ll be worth it.
3. Not understanding that you can lose this money
Two things can happen once you put down your earnest money deposit: The seller accepts your offer, and you move forward with making this your dream home, applying that deposit to closing costs. Or, something unexpected happens that causes you to need to pull out of your contract. Hey, it’s not impossible or unheard of – but depending on the reason you need to pull out of your contact, it may mean you’ll be losing your earnest money deposit if you back out.
4. Giving up your right to cancel your purchase.
Want to avoid the last scenario? Do not remove contract contingencies that would otherwise protect you in case your loan falls through. According to Jeremy Colonna of Matchpoint Funding, “Never give up your right to cancel your purchase until you are 100 percent certain that you’re going to be able to close.” Other rights to cancel a contract can be found in inspection clauses and receipt of condominium documents.
And the last, and most important piece of advice when considering leaving an earnest money deposit on your dream home?
Consult your attorney!
A real estate purchase contract has a lot of requirements and deadlines that can impact the safety of your earnest money deposit. Make sure you understand what you are signing, what you are required to do and that you have an attorney with you every step of the way during the transaction. Grimaldi Law Firm will assist with your home purchase by closely reviewing your contract, explaining all information clearly, and making sure the deal is always in your favor.
At Grimaldi Law Firm in Hollywood Florida, your future is our present.
About the Author: Melinda Grimaldi is an attorney in Hollywood, Florida, whose practice is concentrated in the areas of commercial and residential real estate and estate planning law.
She can be reached at (954) 491-8707
Special Note: The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced real estate attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.