Selling a house presents numerous challenges in itself. The last thing any seller or agent wants to deal with is getting a property under contract simply for the buyer to back out. Therefore, in addition to the sales agreement, the buyers are expected to place a deposit with a title company, lawyer, or seller’s broker. When there’s money on the line, such as a real estate deposit, it lowers the chances of the buyer backing out for little to no reason. Furthermore, it takes time and effort to get a property sold. When a property is pending sale or under contract, but falls through, being forced back onto the market, it can instill fear in a potential buyer that some serious may be wrong with the house. 

What is a Real Estate Deposit?

A real estate deposit, also known as a “good faith deposit,” is a buyer’s way of indicating serious interest in a property and intentions on closing on the deal. A good-faith deposit is an important part of the real estate process; it allows for the next steps in closing on a house, which will be the inspection and appraisal period. A real estate deposit is submitted when an offer is accepted and a sales agreement is completed. The deposit is held with either a title company or a real estate broker. Furthermore, these deposits can be applied to the closing costs, reducing the balance due at closing. The amount of the deposit varies based on many factors, some of which are the location of the home, the sales amount, and seller/buyer preferences. 

How Much is Required for a Good Faith Deposit?

On average, the standard real estate deposit when purchasing property is typically between 1% and 3% of the purchase price. Although certain factors can affect the amount, such as a competitive real estate market. However, the amount of a real estate deposit can be negotiated between the seller’s agent and buyer’s agent.

Where Does the Deposit Go?

The good faith deposit is held by the title company, real estate attorney, or listing agent broker. Typically. placed aside in an escrow account. If the sale reaches the closing table, the deposit gets applied to the purchase price. However, if the deal falls through due to contract terms not being met by the buyer, the seller then has the right to keep the deposit for their time and effort. Therefore, it’s vital to be clear on the contract terms and understand what’s required as a buyer to see the deal to the finish line. Clear communication can protect both sides from any errors. 

Tips for Buyers Involving a Good Faith Deposit

Although we understand that each real estate deal is different and the terms can drastically vary. Here are some standard tips for buyers to protect their real estate deposits:

• Understand the contract/agreement terms: Fully understand what’s in the contract, including the variables that can force a forfeit of the deposit. There are usually clear expectations regarding the timeframe to complete the home inspection and appraisal. Additionally, make it clear in the contract what is expected, or else the buyer can back out and receive the deposit back. 
• Always get a receipt and keep the document with your records. Most deposits are placed through wiring the money to an escrow account or bringing a check directly to the real estate lawyer or title company. Request a receipt to confirm that the deposit was placed, protecting you from miscommunication or a simple mistake. If you’re working with an agent, these professionals understand the process to assist their clients. Therefore, follow their guidance when it comes to “good faith deposits.” 

Time is Valuable: Real Estate Deposits are Vital 

A good-faith deposit in real estate is an important aspect of the home-selling process. It’s required within every transaction. The selling agent will then list the property under contract or pending sale once the deposit is received. Time is valuable in the real estate industry; a lot of money is involved with making the wrong move. Therefore, a real estate deposit holds a buyer’s “feet to the fire” to ensure things are done correctly. Overall, most individuals are not familiar with real estate deposits and how to approach this stage in the real estate process. Therefore, it’s suggested to speak with a real estate attorney or realtor before accepting a deposit and considering any offers. Real estate doesn’t need to be a complicated industry. Therefore, to protect yourself, approach this process with an experienced professional, and never place a deposit with the individual selling the house.