Builder Deposit vs Earnest Money – What's the Difference to Home Buyer?

davidadmin — Wed, 06 Jan 2010 02:51:53 +0000

Ask Cary Real Estate: What’s the difference between a Builders Deposit and Earnest Money? How do they effect the Home Buyer? Cary home buyers offer earnest money on a re-sale home and a builders deposit on most new construction. Here’s a quick overview of the similarities and differences between a builders deposit and earnest money.

Builder Deposit Defined: Money paid upfront at time of contract directly from prosepctive buyer to the builder. Builder deposits into business operating account. Builder credits buyer the amount of the deposit at closing.

Why?: Builder is building a home specifically for one buyer – making changes, ‘customizing’ the home based on that buyers wishes – the builder wants a level of protection should the buyer not actually purchase the home – to avoid being left with a home that might not appeal to the average buyer.

- Usually Non-Refundable if the buyer walks from the contract - the offer to purchase should specifiy

- How much? sometimes calculated as 5%-10% of the base price of home – sometimes 50% of any ‘add-ons’ buyer chooses.

The amount of builder deposit and how it’s calculated varies with different builders and different stages of construction when the buyer purchases. It’s a negotiable amount but that doesn’t mean both parties can come to terms.

Earnest Money Defined: Money paid upfront by buyer at time of contract. Money is payable to a trust account – most commonly the listing real estate firm or a local real estate attorney’s trust account. Money is credited to buyer at time of closing. If property doesn’t close earnest money may or may not be returned to buyer – depending on circumstances.

Why? It’s a show of good faith from buyer and financially invests them in the purchase – the money can be at risk if buyer does not close.

If Disputed – Can’t be released by trust agent unless both parties agree who is entitled or by court order.

Earnest Money Amount: Cary home buyers usually pay 1% of the purchase price but this is negotiable.

Thanks for Reading our Cary Real Estate Blog. Post Authored By: David Williams

David’s a Licensed North Carolina Realtor & The Voice of CaryRealEstate.com

Cary Home Buyer Tip #9 – Understanding Earnest Money with the NC Offer to Purchase

David Williams — Fri, 30 Oct 2009 05:16:02 +0000

What is Earnest Money?

Who Holds the Earnest Money?

How Much Does the Earnest Money Deposit Need to be?

What happens to the Earnest Money if I Don’t Close on the Home?

These are all great questions that home buyers ask before purchasing a home in North Carolina. Here’s a typical scenario for a buyer purchasing a resale home in the Cary-Wake County-North Carolina area You’ve found a home you’re interested in and ready to make an offer. That first offer needs to be in writing – for a re-sale home here in the Cary area we’ll use the standard NC Offer to Purchase Contract. Along with the written offer, you will write an earnest money check.

What is Earnest Money?

Think of earnest money as a deposit on the home, a show of good faith. If/when your offer becomes a contract your money will be held in trust and subject to NC Trust account regulations. At the time of closing the earnest money deposit will be credited towards your purchase of the home.

Who is the Earnest Money Check Made Payable to?

Typically the Listing Company. Most listing firms in the Cary area maintain a trust account for purpose of holding earnest money deposits, however some small firms choose not to maintain a trust account, in this case we can use the CaryRealEstate.com trust account or use the trust account of a local real estate attorney.

How much should the Earnest Money Deposit be?

Technical Answer, the amount of earnest money is negotiable between buyer and seller. Real life answer, usually around 1% of the offer amount. Think of your offer as a gift to the seller – the terms and condition of your offer are like the wrapping paper and bow. The larger the earnest money amount the ‘prettier’ the bow.

What Happens to the Earnest Money if I Don’t Close on the Home?

Notice I saved this one for last? The best answer here is, IT DEPENDS! You, the buyer, may or may not be entitled to a refund of your earnest money – depending on why the closing did not occur – the offer to purchase is the guideline. Here’s the catch – even though it may appear obvious that you are entitled to a refund, both parties (buyer & seller) must sign off on how the earnest money is disbursed before the firm holding the earnest money can release the money. If the parties can not agree then it can become a legal matter.

Could I write more about the intricacies & nuances of earnest money? Absolutely. Would you still be reading, probably not! Please let me know if you have any specific earnest money questions that I did not address.