Escrow deposit is also known as, Earnest Money Deposit (EMD). Earnest means “in good faith”.
This is a small portion from a buyer’s down payment. Depending upon the sales price of the property, as well as if the real estate market is hot (or not), a rule of thumb is, to put down as much as you are willing to risk. Allow me to explain….
As a former Managing Broker for a large real estate company, I have had more than my share of mediating Escrow Disputes. The number one reason why there are disputes is because the consumer lacked understanding about how escrows are handled, as well as their real estate agents’ lack of experience and knowledge of the escrow process.
1) In the state of Michigan, there is no dollar amount, nor percentage, required for an escrow deposit. I recommend making a partial payment in the beginning. More about this in PART 2.
2) Escrow deposit (Earnest Money Deposit) is a Good Faith intent to purchase, in the form of a monetary deposit; subject to specific conditions/performances that are defined in the Sales Agreement. The conditions of purchasing a home are called Contingencies, such as: Home Inspection, Financing, Title Commitment Review, Title Insurance Review , Attorney Review, etc. Each Contingency has a specific period of time for performance. THIS IS CRITICAL. ALL CONTINGENCIES MUST BE INCLUDED IN THE ORIGINAL SALES AGREEMENT.
a) It is recommended that both Buyer and Seller allow a period of time (typically 3-5 business days) to have their attorney review the terms of the Original Sales Contract. This MUST be included as a Contingency.
b) Inspections typically have a 10 – 14 day performance period. In the State of Michigan, Home Inspectors must be licensed by the State. This means, the inspection AND the results of the inspections PLUS any repair requests, MUST be completed and submitted to the Seller, within this contingency period. ALL requested repairs MUST be in writing in the form of an Addendum (to be attached to the Original Sales Agreement) within the contingency period. NO VERBAL REQUESTS
c) Financing process typically takes anywhere from 30-45 days depending upon time of year. (If there are holidays within the Financing time frame, expect the entire process to be delayed; especially the months of November, December and January.)
Each offer you make on a property needs to be based upon a personalized, overall individual strategy. Although an escrow deposit is expected at the time of the offer, make sure you are very comfortable with the dollar amount at risk. Never sign a contract unless you fully understand the terms and conditions of what you are signing. It is always recommended to have your offer contingent upon your Attorneys Review and Approval.
Click HERE for Part 2: Escrow Disputes