As stated previously: When you buy a pre-owned home in Texas, you'll generally find yourself writing two checks along with your purchase contract: One for "Option Money" (made payable to the Seller) and one for "Earnest Money" (made payable to the closing Title Company). Today's topic is almost always the larger of the two, Earnest Money:

"Earnest Money" is exactly that: money that the Buyer of a home puts up (generally in escrow with a title company) to show the Seller that they are serious about buying the home. The amount of Earnest Money can vary widely, and is dependent on the terms of the contract (i.e. a longer time before closing may mean more Earnest Money) but it is often between .5% and 1.25% of the sales price. So, $1,500 would not be unusual as Earnest Money on the purchase of a $200,000 home. If the sale goes through, it is almost always credited towards the closing costs or down payment of the Buyer. So, think of it as a deposit to hold the house. There are generally two opportunities for a Buyer to get out of a deal (contract) and retain their Earnest Money:

1. During the "Option Period" (generally the first 7-10 days of a contract) a Buyer may terminate a contract for any reason and receive their full Earnest Money back... if they had an Option Period and their Option Fee was receipted within 2 days of contract execution (see the previous post about Option Fees).
2. During the "Third Party Finance Period" (generally the first 10-20 days of a contract) a Buyer may terminate a contract if they can prove that they cannot obtain the financing specified in the Third Party Finance Addenda of their contract.

After these two "outs" a Buyer cannot generally get out of a contract without being considered in default of contract. If a Buyer defaults (i.e. doesn't close) on a contract to purchase a home in Texas, the contract gives the Seller three remedies:

1. Specific Performance (i.e. the Seller may sue to make the Buyer buy the home)
2. Damages (i.e. the Seller may sue the Buyer for any/all damages that Seller suffered due to the default. This can get VERY expensive for a Buyer as it may involve moving costs, a second mortgage and more).
3. Accept the Buyer's Earnest Money as liquidated damages (i.e. in lieu of a lawsuit).

So, while many Buyers don't want to put up a lot of Earnest Money, it is actually in a Buyer's best interest to write a decent sized check when it comes to Earnest Money. Not only does this show the Seller that the Buyer is sincere and plans to go forward with the purchase, but they will be credited with the money at closing anyway... and should they Buyer not close on the home, they will either get the money back, or if in default, most Buyers would much prefer that the Seller feel comfortable with the amount of Earnest Money that they could keep than decide to sue (i.e. if the amount of Earnest money is too small to satisfy them).

Ryan Cave, The "Caveman"
Truth, Honor & Personal Integrity
214-789-9366
www.CaveRealty.com