What Is A Deposit? Everything To Know About Escrow, Earnest Money And More

Home with 'For Sale' sign
A real estate deposit can mean a property goes from being 'For Sale' to in escrow.

A deposit for a real estate deal demonstrates the willingness of the buyer to move forward with the transaction.

Legitimate property transactions require deposits to protect both the buyer’s and the seller’s interests.

What is a deposit in a property transaction?

Deposits bear different names in real estate deals such as an escrow deposit or earnest money. For example, home buyers often pay a deposit to secure the property, especially in a competitive market.

A deposit also provides the buyer with more time to conduct due diligence, real estate appraisal and secure financing before closing the deal.

The seller only gets the deposit when the buyer is unable to meet the contract’s terms. Keep in mind that a deposit doesn’t guarantee property ownership for the buyer.

Once both parties agree on the terms of the deposit, it only compels the seller to remove a listing from the market. The duration of time that a property goes off the market will depend on the appraisal and home inspection process.

How much is a deposit in a real estate deal?

A deposit may cost as low as 1% of the property sale’s price. If you’re buying in a hot housing market, the deposit may reach up to 10%.

Buyers can still negotiate the amount with sellers. Some property owners prefer a minimum fixed price for deposits. The amount can be as low as US $3,000. The seller, though, will be inclined to contact buyers with higher deposits.

A bigger deposit does, after all, indicate a more serious approach to closing the deal.

How do property buyers pay a deposit?

Most buyers pay the deposit through checks or wire transfers. The realtor must keep the money in an escrow or trust account until both parties close the deal.

Some buyers prefer to spend the deposit amount on their down payments, while others use it to cover closing costs.

Is there a way to recover my deposit?

Buyers can recover their deposits based on certain contingencies in their contracts. In other words, the deal must contain specific terms on refunds.

One such example is discovering the property’s appraised value to be lower than the purchase price. Another scenario involves the result of home inspections.

If the inspection report shows major problems, the buyer may cancel the deal and recover their deposit.

In some cities, real estate agents are bound by law to provide previous inspection reports on a property. A buyer may ask for the reports after requesting a contract of sale.


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Randolf Santos has covered different segments of the real estate industry since 2014. He worked at S&P Global Market Intelligence before joining Forbes Global Properties as a contributor.

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