Thursday, November 15, 2007

What is a "Good Faith Deposit" and what happens to my money?

What is it?
Rather than being a down payment, it shows the seller that you are acting in good faith, serious about buying the property and intend to complete the transaction.

There are different names for the Good Faith Deposit, you may hear it called good faith check, earnest money deposit, contract deposit, escrow money, or even just deposit.

Is a Good Faith Deposit required when purchasing a home in the Elizabethtown, Kentucky area?
Contracts must contain consideration to be valid but actually the buyer's signature is consideration. So even though technically a deposit may not be required by law, a seller can require a buyer to make a deposit as part of the contract negotiation.

So is my deposit check cashed? Who holds the money?
The deposit check is cashed and held in RE/MAX Executive Group's escrow account (a.k.a. trust account). In the Hardin County Kentucky real estate market, the custom is to have the buyer's brokerage hold the escrow money (Louisville area the seller's brokerage holds it). You can specify in the sales contract where the money will be held.

How much should the deposit be when buying a home near Fort Knox Kentucky?
In some areas of the country, sellers ask for 1% of the purchase price ($175,000 = $1,750). Usually $1,000 is sufficient and what we primarily recommend. It's usually not an issue at any amount and it's just another point of negotiation between buyer and seller. If a buyer feels the property may get multiple offers, he/she may make increase the deposit amount to make his/her offer stronger than a competing offer.

Who keeps the money at the end of the transaction?
If the contract is executed (property changes hands). The money belongs to the buyer(s); it's either applied toward your closing costs or refunded if the seller pays all of your closing costs.

Well what if something goes wrong with the transaction and we don't close?
The first and most important thing you should do is read your sales contract. Your real estate agent can only provide so much help at this point because he/she can't give you legal advice. Every transaction is different and it depends what the reasons were for the breach of contract. Many times the buyer and seller work something out (communicating through their agents). If the buyer and seller can't work it out, then the buyer can't buy and seller can't sell until it gets settled so it may be in both parties' best interest to work it out. The Broker is bound by Kentucky Real Estate Commission rules when disbursing funds.

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