With the advent of online payments, credit card transactions, wire transfers and Paypal, very few carry checkbooks with them any more. However, in the world of real estate, I suggest that you bring your checkbook with you on your house hunt.
As much as you'd like to receive miles, hotel points, or other perks, the fact of the matter is that you just can'tuy a house with a credit card.
When you find the house you'd like to purchase and you're ready to make an offer, it's time for something called an Earnest Money Deposit or Good Faith Deposit.
Webster's Dictionary defines "earnest" as
1. a serious and intent mental state; or
2. a considerable or impressive degree or amount
You'll write a check for the earnest money deposit and submit that with your purchase offer. This money is distinct from your down payment. It's a "good faith deposit" to show your intent to move forward with the purchase. It displays your seriousness to the seller of the home. This check is typically made payable to the real estate brokerage that's assisting you with the purchase or to the title company. The check will not be deposited until your offer is accepted by the seller(s). If your offer is not accepted, the check will be returned to you or held until your next offer on another property.
The Earnest Money Deposit gets held in escrow in a trust account and at settlement on the property will be applied towards your down payment and/or closing costs.
How much is the Earnest Money Deposit?
This common question does not have an exact answer. It's customary to put a deposit of at least 1% of the sales price of the home. Thus, on a $500,000 purchase, you'd be looking at writing a check for $5000 to be submitted with the offer. You can have a deposit of less or more, but just remember that the higher the amount, the more attractive your offer will be to the seller. This is another negotiating tool available in the sales process.
Dust off that checkbook and bring it with you when you go searching for homes.
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That's a great point. Nothing can melt down a transaction faster than someone putting an EMD on a credit card
Brian, This is so true. Today with almost all people using debit cards and online payments, do they know what a checkbook is? One of my clients just totally spaced the idea of a check for the initial deposit on a property. They thought they could wire it. I guess I know have to inform everyone that this "old school" form of payment is necessary.
This is very true thanks for the post and the great info keep up the good work
In the last few months I have had nearly all my buyers have to run and get cashiers check because they dont carry a checkbook. Soon I guess brokers will except a credit card payment..
Most of our contracts are written with a promissory note.... but you have a valid point
Great Post Brian - Jeff says jokingly to prepare our Buyers - Going to a Showing without your checkbook is like going through the checkout lane at the grocery and finding out you left your wallet at home - think the cashier is going to take your offer or promise to return with it seriously ? NOT LOL
Sincerely,
Grace
I had a Client in town over the weekend a few years ago. He did not bring his checkbook. But, an ATM was right across the street.......he went to the ATM and gave me cash!
JONATHAN: Thanks for your comment. I've never seen an EMD on a credit card before.
VALERIE: I do know some people these days who don't even possess a checkbook!
RICHARD: Thanks for your comment.
THESA: While our contract has a space for "check" or "promissory note" -- I've very rarely seen the promissory note option used.
DEE DEE: I'm sure that at some point most brokerages will accept credit cards.
GRACE: Thanks for your comment and that's good advice that Jeff gives!
RICK: How much cash did he give you for the Earnest Money Deposit? Isn't there a limit on withdrawals?