If you’re buying a loft or condo for sale in DTLA, you probably already know you need an earnest money deposit – but what is earnest money, and where does it go once you buy the home?
Let’s Talk About Earnest Money
This guide covers:
- What is Earnest Money?
- How Much is an Earnest Money Deposit?
- What Happens to Earnest Money When You Buy?
- What if You Back Out of a Deal?
What is Earnest Money?
An earnest money deposit – also known as a good faith deposit – is money you put in escrow through your real estate agent to show the seller that you’re putting your money where your mouth is. It shows the seller you’re serious about purchasing his or her home.
How Much is an Earnest Money Deposit?
A standard earnest money deposit is usually between 1 and 3 percent of the home’s purchase price.
What Happens to Earnest Money When You Buy?
If everything goes well and the seller accepts your offer to purchase his or her home, your earnest money deposit will sit in escrow until closing day. At that time, it’ll be applied to your down payment or closing costs.
What if You Back Out of a Deal?
If you back out of a deal after you’ve already given the seller an earnest money deposit, you may or may not get it back. It depends on your reasons for cancelling the transaction.
Let’s say the inspection turned up something you can’t work with. If you have a home inspection contingency built into your contract, you can leave the deal and get your earnest money intact.
But let’s say you get cold feet, and the reason you’re cancelling the deal isn’t a contingency in your contract. In that case, you’ll probably forfeit your deposit to the seller, and the seller will re-list the home.
Are You Buying a Loft or Condo in DTLA?
Call us at 213-254-7626 or get in touch with us online to start exploring your options when you want to buy a loft or condo in downtown Los Angeles.
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