Congratulations, you're about to purchase your first home! We’re guessing you’ve already gone through the mortgage pre-approval phase, and now it’s time to do the exciting part: house hunting! While you can shop with confidence because of the pre-approval letter provided by your lender, you should also be aware of the importance of having enough cash for an earnest money deposit.
Where does the Earnest Money Deposit (EMD) come in?
When you decide to make an offer on a home, both you and the seller enter into an agreement that makes the sale contingent upon certain factors such as appraisal and inspection. The terms are stipulated in a contract, and the seller takes his or her property off the market while you perform due diligence on the home.
But before all of this can take place, you need to show the seller that you are truly capable and serious about purchasing the home. How? By making your money talk. This money, which is called an earnest money deposit, is a sizeable amount that buyers include in the offer as a proof of their sincerity or earnestness—if you will.
What are the basics of an Earnest Money Deposit (EMD)?
The EMD...
is not required—but very seldom do sellers entertain buyers who do not make a deposit in “good faith.”
may offer some peace of mind for the seller, but it is beneficial to you (the buyer) as well. This is because it helps fund your down payment, and allows you additional time to perform due diligence on the home and organize your financing.
is usually held by the seller's broker using an escrow account. Once everything is in order and you’re all set to seal the deal, the deposit goes to funding a portion of your down payment.
typically amounts to 1 to 2 percent of the asking price. In hot markets, however, most buyers are compelled to offer a deposit that is equal to 5 or even 10 percent of the total sale price.
varies from city to city and is given immediately after the seller accepts your offer, or up to three days from said date.
may be a fixed amount required by the seller rather than a percentage of the sale price, e.g. $5,000 to $10,000. Of course, the larger the EMD, the more attractive it is to the seller and the more your offer will be taken seriously.
Cannot be a gift from a friend or family member, unless they are buying with an FHA loan (in which case the EMD may only be provided by a family member).
can be refunded in the event that any of the contingencies are not met. A small cancellation fee may be taken out, but the rest can be taken back as long as it falls under the purchase agreement.
Things to keep in mind:
Practice caution. Make sure that the purchase agreement specifies how a refund should be handled in case the deal falls through.
Make sure to offer enough, especially in a hot market. A seller dealing with multiple offers will entertain only the strongest offers. Make yours stand out by offering a competitive amount. If a high EMD intimidates you, think of it as a way of paying your down payment upfront, since the deposit ends up being part of your DP anyway.
Be 100% certain about the home you're trying to buy. You risk losing your EMD if you back out of the deal without justifiable reason other than simply having a “change of heart.” Be absolutely serious about wanting the house before making an offer that includes a sizeable EMD.
Have the necessary contingencies in place. In a highly aggressive market, buyers are often pressured into removing contract contingencies. You may think that since you've already been pre-approved for a mortgage, deleting the loan contingency wouldn’t be an issue--but this is a mistake. Lenders can revoke a pre-approval based on a number of reasons, such as the house being appraised too low (which means that the buyer is paying more than what the house is actually worth). When this happens and there is no loan contingency in place, your EMD may be forfeited.
Keep track of important timelines. Know how much time you have left to terminate the contract in case you run into problems. To be on the safe side, anticipate the issues that may arise, and include the necessary contingencies in your purchase contract.
If you're buying a foreclosure, be sure to analyze the risks involved. Most foreclosed properties stipulate that the EMD is nonrefundable—and since you’re buying the property “as-is,” it is crucial to be extra thorough on your research before making an offer with EMD.
Hold up your end of the bargain. This is a no-brainer, but make sure that you're not backing out of the sale due to unfair reasons. If you default on the contract at the last minute because of cold feet, or you’re dealing with personal problems that are getting in the way of pushing through with the sale, be responsible enough to accept giving up your EMD as consolation for the seller’s wasted time.

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Counseling Session Activities
- Prepare the buyer for executing a buyer representation agreement
- Explain agency relationships to the buyer and get state required legal consent to represent, if needed
- Inform the buyer of working relationship based on state law, the REALTORS® Code of Ethics, and the broker’s business policies
Building a Relationship
- Learn the buyer’s wants and non-negotiable needs
- Understand the buyer’s budget and what will be needed financially
- Help the buyer understand what property their chosen budget will buy
- Consider having the buyer fill out a homebuyer’s checklist
- Assist the buyer in examining how much they can afford to spend
- Provide quality lender resources
- Partner with the buyer to locate suitable properties for consideration
- Match the buyer’s needs with available property
- Constantly re-evaluate buyer’s needs and refocus property showings to fit those needs
- After ensuring the buyer understands what is done for them, how it is done,and the benefit to them, obtain signatures on the buyer representation agreement
- Explain how compensation is paid, who pays it, and what the buyer’s options are for paying it
Educating the Buyer
- Communicate the working relationship based on state law, the REALTORS® Code of Ethics, and the broker’s business policies
- Explain Federal and State Fair Housing laws
- Explain what to look for in applicable property disclosures
- Reassure the buyer that their personal information will remain confidential
- Inform the buyer that you will always disclose all known material defects
- In accordance with state law, provide information on checking the sex-offender registry and crime statistics for the neighborhood
- Discuss available resources that the buyer can check to learn more about prospective neighborhoods

Preparing the Buyer
- Explain the timeline for house hunting, mortgage approval, and closing
- Explain the local market and how it impacts the buyer
- Show statistics on what percentage of list price sellers in the area are currentlyreceiving
- Inform the buyer on what home features are popular
- Identify current average days on market
- Share the dangers of using the price per square foot to figure home values
- Explain the concept of absorption rate and how it impacts the buying process
- Indicate current listing months of market inventory
- Share estimated potential out-of-pocket costs to complete the transaction
- Assist the buyer in analyzing the loan estimates
- Qualify the buyer for financial ability to purchase
- Help the buyer account for the complete costs of homeownership
- Prepare lender for listing agent calls
- Assist in comparing different financing options
- Help the buyer select for viewing only those homes that fit their needs
- Proceed in showing homes that fit the buyer’s must-haves
- Caution the buyer on posting information to social media
- Review the sample sales contract so the buyer is prepared when it comes time to make an offer
Showing Properties
- Schedule showings and provide access to all listed properties as soon as they become available in their local MLS broker marketplaces
- Educate the buyer on the immediacy of new listings appearing in their local MLS broker marketplaces and the lag time for them to appear on some websites
- Collaborate with the buyer on properties they may have learned about through their sphere contacts
- Research and assist on all unlisted properties the buyer wishes to see
- Preview properties prior to showing if needed
- Network with other agents to source properties not yet in their local MLS broker marketplaces
- Contact homeowners in focus areas to see if they are considering selling
- Set up an automated email alert system through their local MLS broker marketplaces that immediately notifies the buyer of properties that fit discussed requirements
- Arrange a tour of areas, schools, and key points of interest
- Provide resources containing neighborhood information on municipal services,schools, etc.
- Inform the buyer of negative aspects like nearby venues or operations that may result in issues that could impact value
- Collect and share any other vital information on available homes, remembering to follow all fair housing laws at all times
- Check applicable zoning and building restrictions
- Help the buyer decipher public property and tax information
- Collect and share pertinent data on values, taxes, utility costs, etc.
- Compare each property shown to the buyer’s wants and needs list and remind them of what they were looking for
- Help the buyer narrow the search until the buyer identifies top choices
Negotiating Offers
- Assist the buyer in getting the best property at the best price
- Suggest that the buyer learn more about the neighborhood prior to makingan offer
- Prepare a comparative market analysis (CMA) in advance of making an offer
- Prepare the buyer to have the most attractive offer in the current marketplace
- Explain common contract contingencies and include approved protective clauses in the purchase offer
- Ensure that the buyer receives and understands all state and federally-required disclosure forms
- Prioritize contract negotiation goals with the buyer
- Help create a negotiating strategy
- Use strategies such as an escalation clause to maintain a competitive offer
- Prepare the buyer for a multiple offer situation and develop negotiation strategies
- Write an offer that has a reasonable chance of being accepted
- Recommend optional contingencies and explain the pros and cons of using them
- Provide information on purchasing incentives that may be available
- Discuss financing alternatives
- Negotiate the buyer’s offers to arrive at the best price and terms
- Utilize hyperlocal expertise and strong communication skills to assist the buyer in being the successful offer

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