Raleigh Residential Real Estate – Questions and Answers on Making an Offer to Purchase
Earnest Money Deposits -Â Part One
When making an offer to purchase in the Raleigh area of NC or any other area in North Carolina, there is usually a good faith deposit that is made and submitted as a part of the Offer to Purchase and Contract and it becomes a part of the contract. This deposit is known as Earnest Money.
Earnest money is not required as a part of the offer to purchase but most sellers will require some earnest money to see the buyers “good faith†and to provide some protection in case of a default by the buyer. Earnest money typically is paid by personal check, but cash or a bank check also acceptable in most circumstances.
It is important to have the funds to cover the earnest money check at the time it is turned in with the offer to purchase and contract. Most sellers will consider a bounced earnest money check to be a breach of contract.
How much earnest money is usually paid?
This is always negotiable and often is a small portion of the sales price. It depends upon the local conditions, the type of property, local conditions in the market and other factors as well. In the Raleigh area, we typically have seen it to be 1 – 2% of the purchase price. However, there are always exceptions. As an example, two years ago, I negotiated a contact for a $90,000 home in a rural area outside Smithfield, NC that had an earnest money deposit of only $200 (in cash). The buyer knew the seller and the seller wanted to be helpful. Yes – it did go all the way to closing.
What happens to earnest money before closing?
This is where it is important to read the contract before turning over earnest money. In the standard Offer to Purchase and Contract that is used by most Raleigh, NC Realtors® there are protections for the buyer and NC Realtors® are licensed and must deposit the earnest money in a trust account. The earnest money usually does not earn interest in these accounts, but with the use of trust accounts the buyer usually is facing a lower risk of unlawful use. Buyers should pay particular attention to this area of a builder’s contract or where the earnest money is going to be held by the seller.
The North Carolina Real Estate Commission has published a consumer friendly brochure on this topic. You can find this on The Poling Team website at:Â Q&A on Earnest Money Deposits or you can send an email to Art Poling at art@polingteam.com and I will be happy to send you a printed copy of the brochure absolutely free with no obligation. Please remember to include your address.
