In a perfect world, as a home seller, you would be able to find the ideal buyer and sell a house fast in Crystal Beach with zero hassles. Unfortunately, we don’t live in a perfect world, and the reality is that real estate transactions are fraught with numerous obstacles. Thankfully, real estate transactions have something called an “escrow account” to protect the right of sellers.
If you’re wondering what an escrow account is and why it matters, you’ve come to the right place. In this post, we’ll walk you through all you need to know about escrow accounts and earnest money, and we’ll teach you how to protect yourself if the buyer backs out of the sale at the last minute.
What Is Escrow?
Escrow is a formal, legal arrangement in which transacting parties hire an escrow agent to act as a third party and oversee the transaction. The escrow agent ensures that neither party in the deal has an unfair advantage. The primary duty of the escrow agent is to safeguard the assets and funds of all parties based on agreed conditions.
For example, when you sell a home in Crystal Beach, the escrow agent ensures that the buyer doesn’t default on the payment terms as per the agreement. Similarly, the escrow agent guarantees that the seller meets all the buyer’s conditions per the sale terms.
What Is Earnest Money?
Earnest money is a specific amount the buyer deposits into the escrow account after the seller accepts the buyer’s offer. Buyers do this to show their genuine interest in the home. The earnest money gives the seller the peace of mind that the buyer is not going to back out of the sale at the last minute. It doesn’t matter whether you’re selling the home to an individual buyer or a cash home buyer in Crystal Beach; earnest money is part of the real estate deal.
Generally, once the buyer deposits the earnest money, the seller takes the home off the market, and the buyer moves ahead with the home inspection, appraisal, and other steps to close the deal.
The seller’s agent and the buyer’s agent negotiate to decide how much earnest money the buyer has to pay to the seller. Ideally, the earnest money is held by a third party—usually an escrow company—and released to the seller at closing. Generally, buyers will use a check to put up earnest money, though several sellers accept digital transfers today.
Who gets to keep the earnest money depends on why the deal didn’t go through.
For example, if the home doesn’t pass inspection and the buyer withdraws the offer, the appraisal contingency usually allows the buyer to get back the earnest money. Generally, the buyer gets to keep the earnest money if:
- The home doesn’t pass inspection.
- The buyer is unable to obtain a mortgage.
- The home’s appraisal is below its sale price.
- The house has title issues.
On the other hand, the seller gets to retain the earnest money if:
- The buyer changes their mind about the sale at the last minute.
- The buyer doesn’t meet the deadlines for appraisals and inspections.
Wrapping Up The earnest money is put up to show the seller that the buyer has genuine interest in the property. However, who gets to keep it if the deal falls through depends on why the sale didn’t happen.