Deb Tebbs Group

Cascade Sotheby's International Realty

Category: Real Estate Advice

Earnest Money Vs. Deposit – What’s The Difference?


Is there a difference between earnest money and the deposit? The answer to this question is yes.

In this article we will break down the difference between the two so you will be fully prepared to purchase your next home in Bend or elsewhere in Central Oregon.

What is an earnest money deposit?

Earnest money—also known as an escrow deposit—is a dollar amount buyers put into an escrow account after a seller accepts their offer.

Another way to think of earnest money is as a “good-faith” deposit that will compensate the seller if the buyer breaches the contract and fails to close.

Earnest money deposits usually range from 1% to 2% of the purchase price of a home—depending on your state and the current real estate market—but can go as high as 10%. If a home costs $300,000, a 1% earnest money deposit would be $3,000.

The buyer’s financing can also dictate the amount of an earnest money deposit. For example, if a buyer makes a cash offer, the seller may request more earnest money to show a true “buy-in” from the purchaser, says Matthews. In that instance, the seller of a $300,000 home might want a 3% deposit (or $9,000) versus the 1% deposit for an offer financed through a mortgage.

In any case, the seller can either accept, reject, or counter the buyer’s suggested earnest money deposit amount, says Realtor® Bruce Ailion, of Re/Max in Atlanta.

Earnest money deposits are delivered when the sales contract or purchase agreement is first signed. They are often in the form of the buyer’s personal check. The check is held by the buyer’s agent (never given directly to the seller) and is sometimes never even cashed, says Brian Davis, co-founder of If the check is cashed, the funds are held in an escrow deposit account. The money will be shown as a credit to the buyer at closing and will offset part of the down payment amount or closing costs.

So here’s the real crux of the matter: If a prospective buyer backs out of the deal, the seller might be able to keep the earnest money deposit.

Matthews advises sellers to comb through the contract to see if they can take legal action. But keep in mind that if the buyers back out for any reason allowed by the contract or purchase agreement, they are legally entitled to get their earnest money back.

What is a down payment?

A down payment is an amount of money a home buyer pays directly to a seller. Despite a common misconception, the down payment is not paid to a lender. The rest of the home’s purchase price comes from your mortgage.

The down payment money can come from the seller’s personal savings, the profit from the sale of a previous home, or a gift from a family member or benefactor.

Down payments are usually made in the form of a cashier’s check and are brought to the closing of a home sale.

Typical down payment amount

The exact amount of a down payment is often determined by the lender in relation to the overall loan amount. The minimum down payment required by mortgage lenders is 3% of the house’s price, and a 20% down payment is recommended by the real estate industry. But that’s not to say you have to put down 20%. After all, that’s a large chunk of change to have on hand, especially for first-time home buyers.

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Research Your Future Home and Neighborhood

How to Research Your Future Home and Neighborhood

Moving to a new neighborhood can be an exciting time for the family, but it can be a lot of work too. One important part of the whole process is deciding where you want to live, and in which neighborhoods you want to start searching for your new home. This part of the whole experience can seem a bit daunting, especially if you’re moving to anew city or state, and perhaps have to find a new neighborhood and home without even being able to visit first.

First Step: Decide on your Deal-breakers

Before you start the research process, understand one important thing: thorough research can be extremely time-consuming. It can really help you cut through the process if you make some preliminary decisions first, specifically in terms of things you want and don’t want in a neighborhood. For example, if your family includes children, one of your “must-haves” might be living in a particular school district, so that they’ll have the opportunity to attend. Right away, this allows you to narrow your focus on just a few different neighborhoods. You might want to live in a neighborhood with a good “walkability” score, meaning that most important amenities are within easy walking distance, or you might want to live within a certain distance of the beach, or within a certain driving distance of your place of work.

On the other hand, there may be some things that you consider deal-breakers, that you definitely don’t want in a neighborhood; depending on your circumstances and family, you might decide to exclude neighborhoods near busy roads or commercial or industrial areas, halfway houses or rehabilitation facilities, or areas that have a high amount of nighttime noise. While some people actively search for neighborhoods in certain school districts, others do exactly the opposite—because school districts can have a significant effect on house prices, and houses in desirable districts are usually in high demand and more expensive.

Next: Researching Neighborhoods

The internet makes researching your future home so much easier than it used to be, so much so that it’s one of those things that makes you wonder how people got along without it. There’s a huge number of websites now that provide various details about neighborhoods, suburbs, towns, and cities—enough to help you make informed choices about locations before you even visit them.

– Climate and weather conditions at The Weather Channel

– Find detailed crime and safety statistics in the FBI’s Uniform Crime Reports.

– At Walkscore you can find information about the walkability of neighborhoods and what types of amenities are located within them.

Neighborhood Scout provides a wide range of information, including summaries of schools, crime statistics, home appreciation rates, and neighborhood demographics.

Google Maps can be a good resource for preliminary information about public transit services; MapQuest provides easy functionality for searching for amenities within given neighborhoods.

Street Advisor is full of contributions from residents of thousands of different neighborhoods all over the country, and is a good place to get current information.

One of the most useful resources for finding out about neighborhoods from the people who live in them is the website City Data. The site has a large number of forums where members can ask and answer questions about specific places, as well as a huge range of statistics and information about US cities and towns of all sizes, and several different tools and resources. For example, the site includes a tool that allows users to search for business in different neighborhoods, enter a zip code or address to get average home prices, or plot a starting point and destination on a map, and calculate the amount of fuel used for the trip.

Getting a Closer Look

With all this information at hand, it’s easy to narrow your search to a handful of neighborhoods, or maybe even just one or two. Then, using Google Street View, you can actually tour through the neighborhoods themselves, so even if you’re researching neighborhoods in another city or state, it’s still possible to “walk” the streets and get a good feel for the locations you’re interested in.

– Contributed by reader, Emma Flixton


Discover. “Stalking your new Home: Researching a Neighborhood Before Buying.” Accessed July 5, 2014. Research methods for potential neighborhoods.

Lifehacker. “How to Learn All About a New City Without Leaving Your House.” Accessed July 5, 2014. Researching neighborhoods at a distance.

Public School Review. “Why you need to Research School Districts when Buying a Home.” Accessed July 5, 2014. How school districts affect house prices.

Wise Bread. “How to Evaluate a Neighborhood Before You Buy.” Accessed July 5, 2014. Different aspects of neighborhoods.

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Five Reasons to Hire a Real Estate Agent

1. Leave the paperwork to them – there can be a lot of it.

2. Process – same idea as paperwork. From research to procedures, from processing to review, leave the heavy lifting to a real pro that won’t miss a beat.

3. Negotiation – buying & selling a home can be a very emotional experience. Allow your Realtor to act as a liaison between you & the buyer or seller, while keeping your best interest at heart.

4. Values – allow your Realtor to research & suggest the most accurate value on your property or one you are interested in. With careful research & expertise, they should be able to help you reach a realistic price that. hopefully, with which both parties can be happy.

5. Teacher – learn from your Realtor. Sure, you know your home better than anyone but a Realtor knows his/her business. Allow them to educate you so you feel confident & knowledgeable throughout the buying/selling process.

Read the full article here.

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