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Earnest Money (Good Faith Deposit) Explained & How it Works in Real Estate - YouTube
Channel: Living in Western Washington
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- When I'm working with buyers,
I get asked quite often,
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what is earnest money?
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Well that's what I'm gonna
be talking about today,
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and we're gonna get started right now!
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(upbeat music)
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Hey everyone.
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Welcome back to my channel.
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I'm Ledeana Strand with Homes By Strand,
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and RE/MAX town and country
in Port Orchard, Washington.
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I post real estate related
video's every other Thursday,
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and if you want to stay up
to date on what's happening
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in the Kitsap County real estate market,
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and what it takes to buy or
sell a home here locally.
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Consider subscribing by hitting
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that subscribe button down below,
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and the little bell for notifications,
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so you don't miss out on anything.
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So what exactly is earnest money?
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When you are buying a house,
you want to show the seller
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that you are serious about
purchasing their home,
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by putting down a good faith deposit.
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Because you are basically
asking the seller
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to take their house off
the market to give you time
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to get financing and to
do inspections, etcetera.
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So, the seller will want to
see that you have some skin
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in the game as well.
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That is what earnest money does.
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It's essentially a good faith deposit.
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Now, it's not legally
required in Washington state,
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but to be taken seriously by the sellers,
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and the market that we're in
currently in Kitsap County,
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you do need a good faith deposit.
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Now let's dive a little bit deeper.
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Now don't worry, earnest money is money
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that's refundable to you if you
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cancel during your due diligence period.
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And if you don't know
what due diligence is,
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don't worry, I'll be explaining
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that in one of my future video's.
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Part of that due diligence period
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is allowing you to do
all of your inspections,
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for example, a home inspection,
neighborhood inspection,
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maybe you want to check out the schools.
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Any inspections that
you feel are necessary
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to help you make an educated decision
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on whether this is the right
home for you and your family.
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If you find anything that's
a deal breaker for you
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and you end up canceling, you can get
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your earnest money back.
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But if you remove your contingencies,
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if you've done the appraisal,
you've done your inspections,
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you've gotten the green
light from your lender,
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you're moving full steam
ahead and then you cancel,
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the seller would then be entitled
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to keep your earnest money.
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Because you would basically
be in breach of contract.
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Something else to keep in mind,
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is that the money you put
down as earnest money,
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the more serious it looks to the sellers,
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and in multiple offer
situations that we're in now,
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in our local area, can mean the difference
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between getting the house,
or having the seller go
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with another offer that may
have offered more earnest money.
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But at the same time,
you also want to remember
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that the more money you put down,
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the more you stand to lose as well.
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So how much money should you put towards
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the earnest money deposit?
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There is no hard and fast rules on this,
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but typically we see around 1% of the
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purchase and sale price.
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So, if you are buying a $300,000 home,
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that would be $3,000.
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Now don't worry, your
earnest money deposit
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is applied to your closing costs.
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So, if your lender said your closing costs
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are going to be 6,000, you've
already put down 1,000,
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then the cash to bring to the closing
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table would only be 5,000.
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When I am working with
buyer's I have a process
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in place to make sure that my clients
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are never in breach of contract.
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I make sure that they want to move forward
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with the purchase, that we
have gotten the go ahead
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from their lender, and
that the property appraised
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for the offer price, that
we've also have been able
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to negotiate with the
seller on the inspections,
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and that my buyer is happy
and wants to move forward.
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If you decided to cancel
after all of that,
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you would lose your earnest money.
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As a buyer, you want to make certain
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that you are 100% sure
you want to move forward.
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So hopefully you're working with an agent
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that's gonna be guiding
you and letting you know
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of those time frames so that we never put
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that earnest money in jeopardy.
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The last thing we ever want to do is
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have you lose your earnest money.
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So there's typically three contingencies
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when you're buying a house and
they are listed right here.
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The inspection contingency,
meaning we are happy
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with the condition of the house
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and the financing contingency.
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Your lender said yes, they're
gonna give you the loan,
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and the appraisal contingency
where the property
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has appraised for what you've offered
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to pay for it, if not higher.
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If you cancel during your
due diligence period,
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you did your home inspection,
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you were not happy with what you found,
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you're entitled to get
your earnest money back.
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Once you move past the
due diligence period,
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and then you decide to cancel,
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the seller would be entitled
to your earnest money deposit.
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Now if the property does not appraise
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for the purchase price,
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and you are not able to
come up with the difference,
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or re-negotiate with the seller,
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then you're entitled to get
your earnest money back.
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But if you do all of those
things and three days
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before closing, when
everybody's all set to close,
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you say, oops, another house came
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on the market down the street.
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We liked that one better.
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You're probably going to
lose your earnest money.
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So just those are some
things to be aware of.
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Now the next questions that people ask,
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is when does the earnest
money need to be deposited?
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Your earnest money,
whether you write a check
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or do a wire transfer, will
need to be deposited usually
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within one to three days
of mutual acceptance,
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or however it's stated in the
purchase and sale agreement.
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If you are going to wire the money,
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it is extremely important
that you speak directly
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with your escrow company to get
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the proper wiring instructions.
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So hopefully this has cleared up
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any questions you have
on what earnest money is.
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If this is your first time buying a house,
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click this link right up here.
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I did a video on how
to buy your first home,
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and I walk you through the
entire process step by step.
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If you have any questions,
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or if there's anything
I can help you with,
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please don't hesitate to ask.
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Even if you are not in
Kitsap County, Washington,
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shoot me a message, and I'll see
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how I can be of service to you.
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If you liked this video, be
sure to hit the thumbs up button
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and leave me a comment
on what future videos
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you would like to see me do.
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And don't forget to subscribe
to my channel by hitting
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that subscribe button, and I would love
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for you to join the community.
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Thank you for watching, and
I'll see you on the next one.
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Make it a great home
buying and selling day!
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See you soon!
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(upbeat music)
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