The earnest money contract, also known as deposit or reservation contract, lies its importance in the need to establish the conditions of purchase of a property, easening the whole process while declaring the guarantees against a possible breach by any of the parties. Show But, what exactly is an earnest money contract?It is a private contract for the reservation or pre-contract of the property itself, in which the parties sign and agree to the advance reservation of it. In order to do this, an amount of money is delivered form the buyer to the seller as a ‘deposit’. Within the earnest money contracts, we are able to find three different types: confirmatory penalty and double-rate or withdrawal deposits. Types of earnest money contractsConfirmatory deposits : they represent an advance of the total price agreed in the purchase. At this point, it is important to note that the amount delivered as confirmatory deposit is charged to the final price. Penalty deposits: they are equal to the obligations with a criminal clause. Double-rate or withdrawals deposits: indicate the price to be paid by either party in the event of withdrawal from the purchase. The choice of one type of deposit contract over another will be determined by the purpose of the contract, since each one has different legal consequences. Therefore, it should be noted that the contract must include the type of earnest money contract in which said amount is given, although if not clearly specified,it is understood to be a confirmatory earnest money contract. Why do I need to sign an earnest money contract?Do you want to have this property taken off the market? Well, with the signing of it you guarantee that, safely, the property is no longer available on the market. This will allow you to obtain the finance necessary to purchase the property or even manage the mortgage with your bank, so that you can later sign the purchase document. Likewise, the signing of the earnest money contract guarantees that the seller keeps their word to what is established in the contract itself, since a breach of it obliges the seller to pay a penalty for it corresponding to the amount received as a deposit plus a penalty that will depend on the type of earnest money contract signed. In the same way, if the buyer breaches the contract, he or she may partially or totally lose the deposit provided as an advance. It is this bilateral protection, both for the buyer and the seller, which gives importance to this contract, since its final goal is to ensure and preserve the action of the purchase so that both parties feel safe throughout the whole process. Which information should an earnest money contract include?There is a series of minimum data to include, necessary to proceed with the signing of it, that is:
Now, if you are thinking of buying a property, Lagares Abogados offers the support you need throughout the purchase process, from the selection of the property to its registration after its acquisition. If you need more information , please leave us your query here. When you make an offer on a home and the seller accepts, the sale is only finalized when contingencies, or certain criteria, are met. They're typically listed in the purchase agreement and cover the inspection, appraisal and mortgage approval, among other items. Home Inspection ContingencyThe home inspection is a common reason potential buyers back away from a deal. If your prospective home is inspected by a professional and some elements of the home come back in need of repair, a home inspection contingency can allow you to back out of the transaction. If you don't want to back out of the deal, you could also work with the seller to have the repairs made or have them lower the purchase price so you can do the repairs yourself. Appraisal ContingencyThe appraisal contingency, which protects the buyer if the property is overvalued, is equally important. The lender hires a third-party appraiser to determine the fair market value of the home and to compare it to similar properties for sale. With this contingency, if the home is appraised at less than the sale price, you can choose not to move forward with the deal and you'll get your earnest money back. Alternatively, you can use the appraisal to negotiate a new price. Financing ContingencyIf you weren't preapproved for a mortgage when you put your earnest money deposit down – or even if you were – and then you don't get approved, a mortgage contingency can protect you. You have the right to walk away and get your earnest money back as long as this contingency was listed in the agreement. Contingency For Selling An Existing HomeSome contracts also include a contingency for selling your existing home. If you can't sell the home you currently own before you close on another home, this contingency lets you back out of the deal with your earnest money in hand. When To Waive A ContingencyIn hot real estate markets, some buyers feel pressure to waive contingencies; for instance, they may consider this if they're absolutely certain they'll qualify for a mortgage. However, it's never a good idea to waive the appraisal or inspection contingencies. Those contingencies are there to protect you. Who determines earnest money deposit?The amount is determined by the seller. Like most things in a home purchase, you can try to negotiate the earnest amount down. If it is a seller's market, negotiating down will not likely work. Even if you have to deposit more than 5%, the home isn't costing you any more.
Who handles earnest money?Typically, you pay earnest money to an escrow account or trust under a third-party like a legal firm, real estate broker or title company. Acceptable payment methods include personal check, certified check and wire transfer. The funds remain in the trust or escrow account until closing.
Who is the earnest money check made out to in Texas?Earnest money should be given to an escrow agent, which can be a title company. It should be delivered within three days after the contract's effective date, unless the third day falls on a weekend or legal holiday, in which case it is due the next business day.
How much earnest money is required in Texas?How much earnest money is required in Texas? In most areas of the state, 1% of the purchase price or $500 is normal. In hot markets like Austin, an earnest money amount of 2% or more may be needed to stand out against other offers.
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