Once your offer finally gets accepted, one of the first things you’ll do is submit an escrow deposit. This money -- your “good faith” deposit -- helps show the seller that you’re serious about buying the home.
If the home closes successfully, that money is applied to your downpayment. However, if the deal falls through, there is a chance that you could lose out on thousands of dollars.
With that in mind, many buyers want to know what they can do to help keep their deposits safe. Here are 3 foolproof ways to protect your escrow deposit. If you follow this advice, you can rest easy knowing that your hard-earned money will stay where it belongs.
1. Be aware of your contingencies
Every real estate contract is full of contingencies, AKA events that need to happen in order for the transaction to continue to move forward.
Contingencies are often used for things like negotiating inspections, obtaining a satisfactory appraisal, or selling your current home. Each contingency offers an opportunity for either party to back out of the transaction.
However, each one is also a place where your deposit could be in jeopardy.Contingencies rely on everyone following the procedures that are outlined in your purchase agreement. If you decide not to buy the home, but you’ve met all your responsibilities, you’re entitled to walk away with your escrow deposit in hand.
If, however, you haven’t met the terms of the contract and the deal falls apart, the sellers are within their rights to keep your money.
With that in mind, it’s absolutely crucial that you’re aware of what your responsibilities are according to the fine print. Once you have a copy of your agreement in hand, be sure to read over it thoroughly. If you’re confused or unsure about any of the terms, be sure to ask the agent that you’re working with for clarification.
Then, do your best to follow through on each one.
2. Stick to your timeline
Your home's purchase agreement also depends on deadlines that you have to meet in order to keep your deposit safe.
Unfortunately, if you go beyond them, you’re considered to be in default. At that point, the seller would be entitled to keep your deposit, if something should go awry with the deal.
Be aware that, in most cases, the seller won’t automatically seize on your deposit the second you pass the deadline. However, they could use your laxness with timeframes as leverage against you if there’s a dispute down the road. Missing a deadline is not worth the risk, not when staying on top of them will help keep the transaction moving forward amicably.
Here, success is all about leaving yourself enough time to do what you need to do. Keep note of any important dates and start tackling your responsibilities early. Don’t wait on scheduling inspections or meeting with your lender. If needed, set reminders for yourself, so you can make sure that a deadline doesn’t pass by unnoticed.
3. Put any changes in writing
In a perfect world, you’d always be able to meet your timeframes and to fulfill your contractual responsibilities, as needed. However, we all know that that’s not how life works. In the real world, things happen. Sometimes we’re not able to meet deadlines, despite working toward them to the best of our ability.
Luckily, real estate transactions have a provision for the unavoidable. You have the ability to extend a deadline or change the terms of the contract by submitting an addendum.
To do this, you’ll have your real estate agent write up a document containing your proposed changes and submit it to the listing agent. Then, as long as the sellers agree and sign off on the changes, those terms go into effect and the transaction moves forward.
The key to successfully handling addendums is to ask for them as early as possible.
No one wants to be scrambling for an extension at the eleventh hour and have to risk having their request fall through. For the most part, as long as you’re not asking for anything over the top and you give the sellers plenty of time to review their options, they should be willing to work with you.
After all, chances are that they want the transaction to stay together as much as you do.