So, you have finally found the perfect MLS listing in Ajax – a house that ticks almost every box from your list and you placed an offer on it. It’s an exciting time! But you’re also a tad bit fretting over if the seller accepts another offer from a buyer.
Yes, your mortgage pre-approval can strengthen your offer on the Ajax home. However, another good option to show to the seller that you’re serious about buying the home is putting down an earnest money deposit.
In this blog, we’ll provide an overview of what earnest money is and how you can protect this deposit.
What Exactly Is an Earnest Money Deposit, and Why Do You Have to Pay It?
An earnest money deposit is a cash payment that home buyers include with their offer to show sellers they are serious about buying the home. If the buyer successfully closes on the MLS listing Ajax, the earnest money can go towards the down payment or closing costs.
But in case the sale falls through due to any reason, the buyer usually gets their earnest money back. However, if the Ajax homebuyer backs off from the deal for reasons not covered by the contract, the seller typically keeps the earnest money.
The earnest deposit shows the seller that the buyer is serious about buying the home, making their offer more attractive in a competitive market. Also, the earnest money acts as a financial commitment in the deal. This deposit prevents either party from backing out of the deal without a valid reason, giving both the buyer and seller peace of mind during the transaction.
What Is the Standard Earnest Money Deposit for an MLS Listing in Ajax?
The amount of earnest money you should offer depends on the state of the housing market. In a slower market with fewer buyers, sellers face less risk if a buyer changes their mind after putting in an offer. So, they are content with a smaller earnest money deposit.
But in a competitive market with many buyers, sellers risk losing other offers when they accept one. That’s why they often want a higher earnest money deposit to know if the buyer is truly serious.
Usually, the earnest money deposit should be between 1% and 3% of the home’s price. But in very competitive markets, sellers might ask for more earnest money. It’s important to talk with your real estate agent or lawyer to decide on the right amount based on your market’s conditions.
Is Earnest Money on an Ajax Property Refundable?
When you’re buying an MLS listing in Ajax, the earnest money deposit can typically be refunded in these 3 situations –
- First, if you end up going forth with the purchase, the earnest money that you put down can be used for your down payment or closing costs. This is not exactly a refund but it does come back to a homebuyer indirectly.
- You can also get your earnest money deposit back if you decide to back out of the deal for a valid reason before the sale closes according to the terms of your contract. These reasons are often covered by what’s called contingencies.
- Lastly, if the seller breaches the contract – meaning they back out or fail to meet their obligations – you can usually get your earnest money back. In such cases, the contract becomes void and you’re entitled to retrieve your deposit.
Ways for Keeping Your Earnest Money Deposit Protected
Here are some simple yet effective ways to ensure your earnest money deposit on the Ajax MLS listing stays safe –
- Hold the Money in an Escrow Account
An escrow account is a third-party account which is typically managed by a title company or a law firm. So, putting the earnest money deposit in an escrow account means the money won’t be held either by the seller or the buyer. Rather a neutral party that ensures the deal goes according to the real estate contract holds the earnest deposit.
The escrow agent holds onto the earnest money deposit until the closing or certain contingencies outlined in the contract are met. Based on the outcome of the deal, the escrow agent will distribute the money as per the instructions in the contract. This method ensures the seller doesn’t misuse the funds before the sale is finalized.
- Review and Understand the Contingencies Closely
Contingencies outline specific conditions that must be met before the deal on an MLS listing in Ajax becomes final. If you don’t fully understand the contingencies, you might miss important details about when you can back out of the deal and get your deposit back. You might believe a certain situation allows you to walk away, but the contract might state otherwise. This may lead you to lose your earnest money deposit.
- Write Down Every Detail in the Purchase Agreement
The purchase agreement will outline the terms and conditions of the home purchase in Ajax. If the purchase agreement doesn’t have clear details or vague language regarding contingencies, misunderstandings can arise. This can lead to disputes about who gets the earnest money if the deal falls through.
- Be Cautious When It Comes to Meeting Deadlines
To keep your earnest money deposit safe, you must follow the timelines mentioned in your contract. If you miss a deadline, for example, failing to complete the home inspection by the set date, the seller can keep your earnest money. This is why I note down all the deadlines from the purchase agreement of the MLS listing in Ajax.
Schedule inspections and other tasks well in advance to avoid last-minute scrambles. If there’s a chance you might miss a deadline, talk to your real estate agent and seller as soon as possible. You may be able to talk with them for an extension on the home purchase contingency.
It’s Called a Good Faith Deposit for a Reason
The earnest money deposit signifies the buyer’s intention to follow through with the deal. It’s like putting their money where their mouth is.
The deposit assures the sellers that the buyer is not causally considering their home and wasting their time. Also, the earnest money can act as compensation for the seller’s lost time if the buyer backs out of the deal without a legitimate reason. In a nutshell, an earnest money deposit on an Ajax MLS listing is a two-way street to ensure a smooth transaction process between the buyer and the seller.
