I have heard many people within my industry say that Earnest Money is an outdated concept, I don’t agree with this – but before I get into why, let’s go over what it is!
Earnest Money is the buyers “security deposit” of sorts in escrow. It is the buyers In Good Faith Act showing they intend on purchasing the property they are submitting an offer on – it’s essentially the buyers skin in the game.
When writing any offer, VA Loan or not, the buyer will commit to the amount they will deposit to open escrow – known as the Earnest Deposit. As a seller, you will see this amount on the offer. Know that this money is not for you as a seller, it does not get deposited with you or held by you.
As the buyer, you can either use a personal check, cashiers check, or do a wire transfer in order to get the amount into the Title Company. Know that if you elect to do a wire transfer, your bank may charge you a fee.
In Arizona the amount is due once all parties agree to all terms and you officially go under contract. Traditionally this is to occur within 48 hours after contract acceptance.
Lean on your agent for advice on what amount to commit to as a buyer, and what is appropriate to expect as a seller. Just know that the amount will be held at the title company, who is the neutral third party in the transaction and who records the deed into your name at the end. The amount will actually be deposited, so expect the money to leave your account.
The Earnest Money deposit will automatically go towards the buyers closing costs or down-payment. If all of that has been covered in negotiations, the Buyer will get it back.
If the Buyer backs out of the Contract outside of the parameters allowed in the Purchase Contract, the Seller has the right to the Earnest Deposit. In Arizona, in any Earnest Money dispute, the title company has the final say. If you’re unsure on any details of the Purchase Contract, or the Earnest Deposit, be sure to ask your agent to clarify so you’re all on the same page moving forward.