What is an Earnest Money Deposit by Mitten Realty Group

Earnest money (EMD) is a deposit made to a seller that represents a buyer’s good faith to buy a home. The money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing. In many ways, earnest money can be considered a deposit on a home, an escrow deposit, or good faith money.

The EMD will be placed with a broker, a title company, or a lawyer to hold while the real estate transaction is processing. Who will hold the EMD will vary, depending on the instructions for sale or the negotiated place between buyer and the seller. The EMD is a way to ensure that the buyer is serious about the purchase of a property and not “SHOPPING AROUND” while taking properties off the market. The EMD will be credited on the closing statements.

The buyer’s agent should make sure that there are contingencies in the purchase agreement, so the buyer will get their EMD back under certain scenarios. Some of the scenarios include:

  • Bad inspection
    • At times, the seller will negotiate or work out the issues with the inspection, but when both sides cannot agree, the EMD can be released back to buyer and deal mutually released.
  • Property does not appraise
    • Markets change and properties may not appraise for the agreed upon price. Like the inspection, if both sides cannot come to terms, the EMD is released back to buyer and deal mutually released.
  • Misrepresentation by the seller
    • The property should have a seller disclosure. This is 100% completed by the seller. If there is something that is misrepresented, on purpose or by accident, the parties can find a way to fix the situation or mutually release property and EMD returned to the buyer.
  • Mortgage cannot be approved
    • Approvals are not guaranteeing that the deal will close. There are many other factors that come into play after the purchase agreement is signed and the deal processes. If the lender ends up stating the buyer cannot continue, the EMD is returned and property mutually released.

The amount of the EMD is up to the buyer. Normal EMD amounts are around 1% or 2%, but in particularly good markets, the EMD can be as high as 5% to 10%.

Sellers look at the EMD as part of the strength of the offer. For example, if someone offers $500 EMD on a $500,000 home, the seller will feel as though the buyer is not serious. The seller may also feel it is not an amount worth taking the house off the market for. If a small EMD is part of the purchase agreement, you will want to investigate further with the mortgage lender and if cash deal, proof of funds.

When there are multiple offers, every detail is important, including the amount of EMD placed to secure the property. You want to make the listing agent and seller see your deal as the best opportunity to get to the closing table.

In the case where the EMD is being disputed, you will need to review the purchase agreement to decide how to proceed – some purchase agreements have built in mediation or arbitration clauses. You can contact the other broker, use the local real estate board, or in extreme situations, you may need to use an attorney to get the EMD released. Both the buyer and the seller can try to claim the EMD. Therefore, having contingencies in the purchase agreement and everything in writing as the real estate deal progresses. Besides everything in writing, you will want to make sure all parties sign any changes or addendums.

Here are some situations where the seller has the right to request the EMD be provided to them:

  • Buyer gets cold feet and wants out:
    • Just because the buyer gets cold feet or decides the home is not what they wanted; does not mean they get their EMD back. The seller has taken the home off the market and accepted the EMD as good faith that the buyer wanted the home.
    • Both the buyer and seller will need to review the PA for deadlines agreed upon. If the buyer fails to perform, the seller is entitled to the PA.
  • Buyer cannot perform or close by a specific date:
    • If the buyer cannot perform by the contract date, the seller can request the EMD be sent them.
  • Buyer did not provide accurate information:
    • When the buyer provides documentation to the lender, and it is later found out to be untruthful and the mortgage declined, this is not the same as being denied the loan.

These are just a handful of reasons as to why a seller may have rights to the EMD. Both the buyers Realtor and Listing Realtor should have protections in place for their client.

In the case where the EMD is being disputed, you will need to review the purchase agreement to decide how to proceed – some purchase agreements have built in mediation or arbitration clauses. You can contact the other broker, use the local real estate board, or in extreme situations, you may need to use an attorney to get the EMD released. Both the buyer and the seller can try to claim the EMD. Therefore, having contingencies in the purchase agreement and everything in writing as the real estate deal progresses. Besides everything in writing, you will want to make sure all parties sign any changes or addendums.

Writing up a purchase agreement has more than a price to offer a seller. Realtors are professionals at making sure your offer is written to secure your interests and protect you. Listen to the Realtors advice when they are working on your deal. They do this every day. Although, the Realtor does work for you, and in the end will submit the offer how you feel comfortable, they are the best resource for making deals happen.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan, please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

What is a Buyers Market by Mitten Realty Group

A buyer’s market occurs when the supply (available homes for sale) exceeds demand (the number of buyers seeking to purchase homes).

FOR BUYERS: If you are buying a new home, a buyer’s market is the ideal time to make your move. You might be able to buy a great home for a lower cost than you would in a seller’s market. This is the best market for you to get equity from the start. Your Realtor should be able to do the homework and know what the market is trending at regarding pricing for the area you are looking in. Not all homes will be affected by buyer’s markets. Sellers who do not need to sell, sellers who can wait out the current market, and specialty homes where the seller knows there is value outside of market conditions. There are still multi-offer situations in a buyer’s market. This situation may drive the price back to asking or above. Decisions will be made to get your dream home above what you were expecting or move on to find the bargain during the buyer’s market.

FOR SELLERS:
If you are trying to sell your property in a buyer’s market, your home may remain on the market longer before you’re able to secure a buyer due to the large number of available properties. You may also have to lower your listing price or make other concessions in order to secure a buyer. Your listing Realtor should help you find ways to maximize the value of your home. There are things you can do and offer to attract a buyer who is willing to pay the right price for your home. In a buyer’s market, you want to 1) make sure your home in priced right 2) make sure your home in prepared right and 3) make sure you home is marketed right (show all the value).

FOR SALE BY OWNER SELLERS: Many people try to sell their home For Sale by Owner during a buyers’ market in order to save money on commission. For some, this will work, but for many, they may not have the knowledge of the market, and negotiations skills in order to get the maximum pricing for their home. Using a Realtor can help you make more money on the sale of the home, above what you would have paid out in commission. Realtors do the research, know the values, and can make sure the purchase agreements are not in favor of only the side of the buyer. When a buyer’s agent sees that the property is FSBO, they tend to be more aggressive with lower offer and requesting additional concessions the seller may not realize they are paying out. Call on the professionals to help guide you through this market.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan, please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

What is a Sellers Market by Mitten Realty Group

A seller’s market occurs when demand exceeds supply, or there are more buyers seeking to purchase homes than there are available homes on the market. This often leads to multiple buyers interested in a single property, resulting in bidding wars. Bidding wars delay you from getting an accepted offer, along with driving up the price of the home.

FOR SELLERS: A seller’s market is a fantastic time to sell your home as you could secure a sale price that’s higher than your listing price, or at least more than your bottom line (the lowest price you’d be willing to accept for your home). As a seller there are things you will still need to be aware of. The first is appraisal – homes still need to be appraised for those using financing. If you are lucky enough to have a cash buy, this does not typically come into play. Sellers should make sure their agents are creative in how they counter and accept purchase agreements. A good Realtor (Listing Realtor) knows how to handle purchase agreements in this type of market.


FOR BUYERS:
If you are buying a home in a seller’s market, be aware that the seller has the advantage. If other buyers are interested in the same property, you are making an offer on, trying to get a lower sale price probably will not work to your advantage. In fact, you could lose the opportunity to purchase the property altogether if a competing buyer makes a higher offer. A seasoned Realtor can help get creative to win when competing in a sellers’ market. Even with the offer not being the highest, there are statements and offers that can be built into the purchase agreement that will get you the bottom line and add value to the seller.

Buyers during a seller’s market feel as though they are getting taken advantage of, and you are right. Seller’s and the Realtors monitor the market and know when the favor turns to them. Remember that markets will flip and become buyer’s markets too. Then the seller’s now feel how buyers did. You can push through these markets on either side. Missing out on your dream home for a higher offer should never be a factor that stops you from buying.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan, please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

FSBO vs Realtor by Mitten Realty Group

When you decide to sell your home, you have 2 options. You can sell it on your own as a For Sale By Owner, and the other is to use a professional Realtor. Each one has the main goal to get it sold to the closing table, but each are quite different. How you approach the sale of your home is a choice that can make the process easy or difficult.

Pricing:

  • FSBO: When selling on your own, you will decide on the price you want to sell your property. FSBO usually will do this by looking on FREE public websites like Zillow to determine value. These sites have information, but how relevant and accurate is unknown. FSBOs also use what their neighbors have sold for or what the neighbor’s current home is being sold for. Each home will have different square feet, updates, and condition of the property itself, which will affect value. Emotional value can lead to pricing the home wrong.
  • Realtor: Realtors have tools that can help define a value. They have access to all the relevant comps that have sold in the area. They know which can and cannot be used for your specific home. Realtors will also walk the property to review it and then compare back to the comps. Adjustments will be made for updates, condition, square feet, appliances and more. A Realtor does not have emotion when it comes to pricing. It is based on data and the home itself.

Forms:

  • FSBO: All forms must be purchased. A Seller must provide certain documents to potential buyers to keep in compliance. Sometimes the sellers cannot get access to the documents needed. If a buyer without an agent wants to make an offer, one of the parties must seek out a purchase agreement that both sides agree on using. You should not use a FREE or general agreement.
  • Realtor: A Realtor has access to all documents needed to put a home up for sale. From listing agreements to required documents that must be accessible by other Realtors. A Realtor also has a good purchase agreement that has been used many times.

Marketing:

  • FSBO: When you are selling the property on your own, you must find the best ways to get it in front of potential buyers. There are several websites out there and social media that can be used. Some of these websites connect with others, but you will be doing the marketing one by one, setting up new profiles, logins, and listings. When you make changes, you will need to login to each one and update the information and/or photos. Social media is good, but like real estate websites, you will have to post to each individually.
  • Realtor: When a Realtor does the marketing, they use the MLS. The MLS is a portal for thousands of Realtors and real estate professionals to search and find homes for their clients. The MLS also connects to thousands of other websites automatically sending out information on listed homes to be seen by potential buyers. When changes are made on the MLS, they are updated on the 3rd party websites in seconds. Realtors also use social media to connect with potential buyers and other Realtors. There are many platforms and sub-groups within these platforms that Realtors use. One of the biggest tools Realtors use, is email (CRM) to get the listing in front of Realtors and clients. Realtors keep solid databases of contacts to be able to market to them in a click of a button.

Showing Houses:

  • FSBO: Someone selling the home on their own will be taking all the calls on their own, setting up appointments, tracking the appointments, and then following up on the appointments. The FSBO must find ways to verify who is coming to see the home. How does a FSBO ensure that the people coming to their home, to go into their personal space, are Realtors with potential buyers and not just people wanting to wander through the home. FSBO also must provide access information to those who request to see the home. They provide lock boxes, leave the door open or stay to let the requested viewer in.
  • Realtors: A Realtor working to sell your home will monitor all showing requests. Realtors use technology and tools like ShowingTime to approve or reject showings based on the needs of their clients. Those who have access to request showings through this tool are licensed Realtors, allowing the Realtor and their client the safety of knowing that the person showing the home is legit. The tool also only allows lockbox codes once the showing is approved. Another tool Realtors use is electronic lockboxes. This adds another level of security, with being able to track access when it starts and ends. It also does not have the same code being used over and over. It uses the Realtors phone to connect with the box to get to the key. Realtors also get showing feedback from the showings that allow them to analyze the thoughts of the other Realtors and clients who have seen the property.

Offers:

  • FSBO: When an offer comes in to a FSBO, the home seller must review the doc and understand it in its entirety. Many purchase agreements have legal terms and deadlines that can affect the outcome of the sale. FSBO must negotiate with a professional Realtor. Another part of the offer is the review of the buyer’s mortgage approval. If there is a cash offer, this can be another challenge when requesting the docs to show the buyer can close cash.
  • Realtor: A Realtor handles offers of real estate for a living. They have seen the various wording and versions of local real estate companies and knows what to look for regarding price, deadlines, and concessions. Purchase agreements seem like boiler plates, but they can come with some legal issues if one side fails to perform. If there are issues found after the bottom line, it can be difficult, if impossible to correct. A Realtor knows what to review to not have issues. Realtors are also professionals when it comes to reviewing approvals from mortgage companies. They know the right questions to ask the mortgage companies. If a cash offer comes in, the Realtor knows how to request and review the right documents to make sure the cash is available to close.

Post Offer:

  • FSBO: After the bottom line of an offer the seller must make their home available and handle the inspection and appraisal, along with requested walk-throughs. Depending on the outcome of the inspection and appraisal more negotiations may happen to request a reduction of price or change to the terms of the purchase agreement. This can be difficult for a FSBO since they do not have access to comps and other current information or understand the write up of the inspection. It is much harder for a FSBO to argue appraisal valuation and the buyer’s agent will not help since they want the best pricing for the buyer. They do not work for seller.
  • Realtor: A Realtor will handle the inspection and appraisal. Your Realtor will review both the inspection and appraisal as it comes in. If there are additional negotiations, they will review the requests and make their opinions. Some buyer’s agents look to offer one price, knowing they will ask for a reduction after an inspection. Realtors also can review inspections to see if the requests are correct or just a way of getting a price reduction. A Realtor can help argue valuation if the appraisal comes in lower than the purchase price by proving comps that are recent and that match the subject property. A Realtor who prices the house right will have the information to back up value when an appraisal comes in lower than expected.

Closing:

  • FSBO: When documents come in for the closing. A FSBO will need to look at all the costs and understand what is being charged to them and to the buyers. A closing statement has a lot of fees, commissions, payoffs, and taxes. If there are errors in items like commission, you will need to negotiate and work that out with the buyers Realtor. Doing this can delay or cause the closing to not happen.
  • Realtor: A Realtor knows how to review all closing documents from the closing statement, the title work, and all docs required to sign. A Realtor will make sure that all charges are to the right party in order to have a smooth closing. Any discrepancies the Realtor should have documentation to back it up, especially commission, which is part of the listing.

 

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in  Michigan, please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.