Earnest money is standard practice
Q. We are looking to buy our first home, and we have a good agent, but I thought I would double-check with you. She says we will be expected to give her a substantial check when we make an offer on a house. She says that's standard practice, but both of us are nervous about it. Is this the way it's really done? What if our offer isn't accepted? What if something goes wrong and we don't end up buying the house? We need some information.
A. Yes, an offer is usually accompanied by a substantial deposit, variously known as a binder or earnest money. It proves to the sellers that you mean business. After all, when your offer is accepted, they are going to take the place off the market on your behalf. The deposit also serves as a source of damages should you back out for no good reason.
If your offer is accepted, the check is not given to the seller. It's usually placed with an attorney or a broker, and it will be deposited in a separate escrow (trust) account.
You may be told that 6 percent or 10 percent of the purchase price is usual. If this is inconvenient, you could come up with a smaller amount. The contract could even be legal without any cash. Remember, though, that the sellers are weighing your offer to see if it will result in a successful sale. Without much earnest money, it may not look convincing.
The contract will contain provisions that clearly state under what circumstances the deposit would be returned. If all goes well, it counts toward the sum you'd need at closing, credited toward the down payment or other settlement costs.
Q. About three years ago, we bought a house with four bedrooms and 2½ baths in a top school district and a desirable neighborhood. Our home is neither the cheapest/smallest nor the most expensive/largest.
Because of a job change, we have to move. We've been on the market for 80 days. We have a Realtor. He says he's marketed in every database available. People visit, but they don't buy.
What else can we do? We can't sell too cheap because we need to buy where we're going, and we can't stay put. Renting it out isn't a possibility either. Ideas?
A. You're wise not to consider becoming landlords -- it's easy to make amateur mistakes.
Your home sounds great. The buying public, though, simply compares it with what else is offered in the neighborhood. Buyers aren't concerned with how much you'll have to spend in your next location.
After 80 days with no offers, you probably need to bite the bullet and lower your asking price. If you were to offer the place for $2, it'd sell in five minutes. Somewhere between $2 and what you're asking is a figure that will bring offers.
Is your agent suggesting a price reduction? If not, you're not getting good service.
Q. You have helped me a couple of times in recent years. My husband and I are planning to relocate out of state for retirement. We don't currently have a mortgage.
Our initial thought was to buy a next home in the new location first. We would know exactly how much room we'd have and could better decide what furniture to move. We figure after selling here, we could pay off the new mortgage.
However, it was suggested that we sell first and then try to find the new home once we have our cash in hand, renting in the meantime. Since we have two large dogs, this doesn't seem as desirable an option.
What would you recommend? We are planning this for at least a year from now.
A. Sell first or buy first -- there isn't a right answer. You're right, though; it could be difficult trying to rent with two large dogs for a relatively short time.
For some people the answer would be determined by their financial situation. Did you mean to put that new mortgage on the home you'd be buying? You do realize that if it wasn't yet intended as your main residence, you might need a substantial down payment?
Clearly, I don't know enough about your finances to make a recommendation. A conference with a local mortgage lender might help with the decision.
• Contact Edith Lank on www.askedith.com, or 240 Hemingway Drive, Rochester NY 14620.
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