With the advent of online payments, credit card transactions, wire transfers and Paypal, very few carry checkbooks with them any more. However, in the world of real estate, I suggest that you bring your checkbook with you on your house hunt.
As much as you'd like to receive miles, hotel points, or other perks, the fact of the matter is that you just can'tuy a house with a credit card.
When you find the house you'd like to purchase and you're ready to make an offer, it's time for something called an Earnest Money Deposit or Good Faith Deposit.
Webster's Dictionary defines "earnest" as
1. a serious and intent mental state; or
2. a considerable or impressive degree or amount
You'll write a check for the earnest money deposit and submit that with your purchase offer. This money is distinct from your down payment. It's a "good faith deposit" to show your intent to move forward with the purchase. It displays your seriousness to the seller of the home. This check is typically made payable to the real estate brokerage that's assisting you with the purchase or to the title company. The check will not be deposited until your offer is accepted by the seller(s). If your offer is not accepted, the check will be returned to you or held until your next offer on another property.
The Earnest Money Deposit gets held in escrow in a trust account and at settlement on the property will be applied towards your down payment and/or closing costs.
How much is the Earnest Money Deposit?
This common question does not have an exact answer. It's customary to put a deposit of at least 1% of the sales price of the home. Thus, on a $500,000 purchase, you'd be looking at writing a check for $5000 to be submitted with the offer. You can have a deposit of less or more, but just remember that the higher the amount, the more attractive your offer will be to the seller. This is another negotiating tool available in the sales process.
Dust off that checkbook and bring it with you when you go searching for homes.
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Great Post Brian - Jeff says jokingly to prepare our Buyers - Going to a Showing without your checkbook is like going through the checkout lane at the grocery and finding out you left your wallet at home - think the cashier is going to take your offer or promise to return with it seriously ? NOT LOL
Sincerely,
Grace