An Escrow Deposit, also known as an Earnest Money Deposit, is money that a homebuyer puts down as a sign of good faith when purchasing a home.
Where does the escrow deposit go?
The buyers escrow deposit is usually held by the Listing or Selling Real Estate Brokerage, Title Company or Attorney and will be applied towards the buyer’s closing costs.
When is the escrow deposit collected?
Our Residential Contract for Sale and Purchase has three options for when the escrow deposit is collected:
1. It Accompanies the Buyer’s Offer
2. Upon Seller Acceptance
3. Collected within “X” Days After Seller Acceptance
Most homebuyers choose option #2 as opposed to option #1 because once an escrow check is collected it must be deposited into an escrow account. By choosing #2 the escrow deposit will only be collected and deposited if the buyer and seller come to terms.
How much escrow does a buyer need to put down?
The amount of an escrow deposit varies. In my experience the initial deposit is usually between $1,000 to $5,000. Besides the initial deposit a homebuyer may put down an additional deposit within 7-15 days after the effective date of the contract.
Do homebuyers have to put down an escrow deposit?
NO, BUT I have never seen a seller accept an offer without an escrow deposit.
Can a seller keep a homebuyers escrow deposit?
YES, IF the buyer defaults there is strong possibility the seller will be entitled to the buyer’s escrow deposit, but it depends how the contract was written.
If a buyer’s only contingency is to obtain financing within 30 days and they are denied within that contingency period the escrow will be returned to the buyer. However if the homebuyer is approved for financing and on the 35th day the buyer decides to back out of the contract the seller will most likely be entitled to the buyer’s escrow deposit. Once again it all depends on how the contract was written.
Can the escrow company release the escrow deposit to the buyer or seller?
If the buyer is backing out of the contract both the seller and buyer will need to sign a release and cancellation of contract agreeing to who gets the escrow deposit. However if the escrow money needs to be released for closing most escrow companies require an escrow request form to be completed and the escrow deposit will be made payable to the closing company. This isn’t something the buyer or seller needs to sign off on.
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