Recognizing earnest payment red flags

On Behalf of | Apr 1, 2024 | Real Estate

Earnest payments, also known as earnest money or a good faith deposit, are funds provided by a buyer to demonstrate their commitment to purchasing a property. They are typically held in escrow until the closing of the sale.

It is important to be aware of potential red flags surrounding earnest payments to avoid any pitfalls during the buying process.

Unreasonable requests

One red flag to watch out for is an unreasonable earnest payment request. If a seller asks for an unusually large amount of earnest money compared to the customary percentage in your area, it could be a sign of potential issues.

Lack of documentation

Another concern is the absence of proper documentation or a receipt for the earnest payment. Always ensure that you receive a written agreement or receipt confirming the amount of earnest money paid and the terms of the agreement.

No contingencies

A lack of contingencies in the purchase agreement can also be a red flag. Contingencies are mandatory conditions to allow the sale to proceed, such as a satisfactory home inspection or securing financing. Without contingencies, you may risk losing your earnest money if you need to back out of the deal for valid reasons.

Reluctance to sign a formal agreement

Lastly, if the seller is reluctant to sign a formal agreement outlining the terms of the earnest payment, it could be a red flag. A written agreement helps protect both parties and ensures proper handling of the earnest money.

If you have concerns about signing an earnest agreement or any other part of your home purchase process, consider seeking professional support to protect you.