Good Faith Deposit - Real Estate Transactions
By Raynor James, Fri Dec 9th
In a real estate transaction, a touchy issue is how much trustthe seller has in a buyer. The existence of a good faith deposithelps put a seller at rest.
Good Faith Deposit
If you are selling your home, condominium or other real estate,you should always require a buyer to make a good faith deposit.The good faith deposit simply establishes that the buyer isserious and, to some extent, has the financial capacity tofollow through on the purchase.
The amount of the good
faith deposit is dependent upon theagreed sale price of the real estate. Although percentages varyfrom state to state, a cash deposit equal to three percent ofthe sales price is typical. For instance, the deposit would be$9,000 for home selling at a price of $300,000. As with mosttransactions, this percentage is negotiable. I don't recommendthat you accept anything less than two percent.
Once the buyer and seller agree to the amount of the good faithdeposit, you have to figure out what to do with the deposit.Importantly, the seller should not hold the deposit as doing socould make the buyer very uncomfortable. Instead, the moneyshould be deposited with a third party and held "in trust."Potential third parties include escrow and title insurancecompanies as well as an attorney if your state requires theirinvolvement.
A good faith deposit acts like an insurance option for a seller.Moving through escrow can take 30 to 60 days, during which theproperty is off the market. The good faith deposit essentiallycompensates the seller for this time in the event the buyer isunable to follow through on the purchase of the property.
Depending on the laws in your state, a buyer who can't closewill lose the deposit. Typically, the only exception to this iswhen the seller allows language indicating the deposit will bereturned if the buyer can't get a home loan. Of course,including such language can open the seller up to repeatedfrustration when bad credit buyers repeatedly fail to getfunding.
Good faith deposits are a fundamental part of a real estatetransaction. Buyers should expect to pay them and sellers shoulddemand them.
About the author:Raynor James is with http://www.fsboamerica.org - providing FSBOhomes For Sale By Owner. Visit our "sell my home" page athttp://www.fsboamerica.org/seller.cfm to list and sell your homefor free for one month. Visithttp://www.fsboamerica.org/buyer.cfm to see homes for sale byowner.
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