By definition, being earnest is showing sincere and intense conviction. In real estate, the concept of earnestness is no different. We’re here to demystify the often misunderstood idea of the earnest deposit.
What is earnest money?
Earnest money is a deposit that the home buyer makes to the home seller as an indication of good faith. It is the monetary equivalent of a handshake, promising follow-through as long as all terms are met. The money is placed in an escrow account with the seller’s title or escrow company. Though earnest money deposits may vary depending on the competitiveness of the market or risk factors in the buyer’s offer, earnest is typically 1-5% of the home’s purchase price.
Is earnest money refundable?
Earnest money is refundable in certain circumstances. Contracts often allow for the buyer to opt-out of purchasing the house during the inspection period. If the buyer decides the repairs the house needs are too extensive, or there are other issues they are uncomfortable with, they can choose not to purchase the house, and their earnest money is refunded.
If the buyer is seeking financing, the sale is often contingent on the bank’s appraisal of the home. The appraisal needs to justify the sales price of the home. If it doesn’t, the buyer has the ability to cancel the contract and receive a refund of their earnest funds.
What is the timetable for the option period?
The option period varies depending on the terms agreed upon in the purchase contract. Often the inspection period is ten days. The appraisal is dependent on the bank’s timeline. Once the inspection and appraisal are completed, the earnest money is no longer refundable.
When does the buyer forfeit earnest money?
If the buyer backs out of the purchase of the property outside of the inspection and appraisal period, they forfeit their earnest money.
When are earnest funds released from escrow?
Earnest funds are released from escrow at closing. The earnest funds are usually applied to the buyer’s down payment or closing costs.
What’s the typical earnest deposit in Arizona?
The amount of earnest varies depending on the list price of a property. While some properties may only require 1% earnest, buyers should expect luxury properties to have a higher demand.
Are there earnest deposits for rentals in Arizona?
There are earnest deposits for rentals in Arizona. The deposit a landlord requires is up to the landlord’s discretion. The earnest deposit is non-refundable if the tenant does not take occupancy of the property.
