Real Estate Transactions Facts About Good Faith Deposits
Considered as a touchy issue in a real transaction is how much trust the seller has in a buyer. Helping to put a seller at rest is the existence of a good faith deposit.
What is a Good Faith Deposit?
If you are selling your home, condominium or other real estate, you should always require a buyer to make a good faith deposit. Simply establishing that the buyer is serious is the good faith deposit and to some extent, it has the financial capacity to follow through on the purchase.
The amount of the good faith deposit is dependent upon the agreed sale price of the real estate. From state to state, percentages may vary but a cash deposit equal to 3% of the sales price is considered typical. For instance, the deposit would be $9,000 for home selling at a price of $300,000. Just like with most transactions, you can negotiate this percentage. Remember that it is not a good idea to accept anything less than 2%.
You have to figure out what to do with the deposit once the buyer and seller have agreed to the amount of the good faith deposit. Another thing to remember is that the seller should not hold the deposit because if he did, it could make the buyer very uncomfortable. Instead, the money should be deposited with a third party and held “in trust.” Included as potential third parties are title insurance companies, escrow, as well as an attorney if your state would require such an involvement.
For a seller, a good faith deposit will act like an insurance option. It can take 30-60 days to move through escrow and the property is off the market during this time. The good faith deposit essentially compensates the seller for this time in the event the buyer is unable to follow through on the purchase of the property.
Depending on the laws in your state, a buyer who can’t close will lose the deposit. Typically, the only exception to this is when the seller allows language indicating the deposit will be returned if the buyer can’t get a home loan. But by including such a language, the seller can be opened up to repeated frustration when bad credit buyers repeatedly fail to get funding.
A fundamental part of a real estate transaction are good faith deposits. The buyers are expected to pay them while the sellers should demand them.
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