How to Avoid Losing Your Deposit in Real Estate
To Avoid Losing Your Deposit
Know When to Remove Real Estate Contingencies
a Realtor, I pride myself in protecting my clients (buyers and sellers)
at all costs against all contingencies and events that can take a real
estate transaction down the wrong path.
One of the most costly events for home buyers during escrow is losing
their “Deposit”, in technical terms the Good Faith Deposit aka the
Earnest Money Deposit (EMD) Here are the circumstances that can lead to
the loss of the Deposit and how to avoid it.
When the escrow period begins after an offer is accepted, home buyers need to wire the Deposit to the tile company within 3 days of acceptance of the offer. As you all know, the Deposit usually represents 3% or more of the offered price.
The Deposit is then held by the title company to be applied at closing
towards the down payment and closing costs. Remember that the Deposit is
still your money, even though it is held in escrow. However, you should
bear in mind that your Deposit will be used to indemnify the seller if
the transaction does not close because of you or any of your actions.
The most common reasons why buyers lose their Deposit is as a result of
the non-removal of one of the three following contingencies within the
deadlines specified in the California Residential Purchase Agreement,
which are as follows:
- 21 days maximum after acceptance for the loan contingency
- 17 days maximum after acceptance for the appraisal contingency.
Remember that if the appraisal report concludes that the property is
not worth the price you are willing to pay, you will not receive the
full amount of the loan you requested, instead it will be resized to a
percentage of the appraised value. If you cannot pay the difference with
personal funds or do not have an alternate financing solution, you will
need to cancel the contract
- 17 days maximum after acceptance for the condition of the property contingency.
For the record, this contingency grants potential buyers the right to
inspect the property at their own costs and allows to either cancel the
contract or negotiate repairs based on findings of the inspection
regards to the cancellation of the contract, note that it is the duty
of the Buyer’s Agent to initiate it and that it can be done at any
moment; In other words, no need to wait for the last minute. Also
remember that a contract will not be automatically voided after
expiration of the deadlines, so make sure that your Agent is always on
top these deadlines.