When you purchase a home, it’s customary to deposit “consideration” as good faith that you are going to complete the transaction. Although “consideration” can be anything of value, the most common form is a cash deposit.
Depending on the price point of the property you are purchasing, you can expect to deposit 1% of the purchase price. With lower priced properties, in today’s market, it could be as little as $1000.
In Arizona, the Earnest Deposit is usually held by the Title Company, a neutral third party that is hired to oversee the escrow, follow the terms of the Purchase Contract and ensure the Deed can be transferred to the buyer without any issues. In some cases, the Real Estate Brokerage may hold the Earnest Deposit in their Broker Trust Account.
The current Arizona Association of Realtors’ Purchase Contract is fairly Buyer-friendly. It allows a minimum of three opportunities for the Buyer to cancel the Contract and still receive a refund of their Earnest Deposit. The first opportunity is during the Inspection Period, which is typically ten days, including weekends and holidays. If the Buyer discovers derogatory facts or information about the Property, the Buyer may disapprove the Property and cancel the Contract immediately. A more common option is to give the Seller an opportunity to correct any items that can be repaired/replaced, or negotiate a lower sales price, or a credit in lieu of repairs.
Assuming the inspections and negotiations go well, the next step is the Appraisal. If the Buyer is taking out a mortgage on the property, the lender will usually require an appraisal to validate the contracted purchase price. If the property doesn’t appraise for at least the purchase price, and the Seller is not willing/able to reduce the purchase price to the appraised value, then the Buyer will have the opportunity to cancel the contract and receive a refund of their Earnest Deposit.
The third opportunity occurs if the Buyer runs in to difficulty getting full loan approval. If a Buyer loses their financing, they are usually entitled to a refund of their Earnest Deposit.
Other opportunities may arise if the Buyer is purchasing a home contingent upon the sale of another property. Outside of these contractual terms, a Buyer could be in jeopardy of losing their Earnest Deposit if they cancel the contract.
As long as you complete the purchase, your Earnest Deposit will be applied towards your down payment amount, or your closing costs. If you are purchasing using a VA loan, you may even get your Earnest Deposit back in full! Since every real estate transaction is different, be sure to consult your trusted Realtor if you have questions about your situation.
If you don’t already have a trusted Realtor, Ravenswood Realty is here to help!