United Built Homes, Good Faith Deposit – Real Estate Transactions

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United Built Homes, Good Faith Deposit – Real Estate Transactions

In a real estate transaction, a touchy issue is how much trust the seller
has in a buyer. The existence of a good faith deposit helps put a seller at
rest.

Good Faith Deposit

If you are selling your home, condominium or other real estate, you should
always require a buyer to make a good faith deposit. The good faith deposit
simply establishes that the buyer is serious and, to some extent, has the
financial capacity to follow through on the purchase.

The amount of the good faith deposit is dependent upon the agreed sale price
of the real estate. Although percentages vary from state to state, a cash
deposit equal to three percent of the sales price is typical. For instance,
the deposit would be $9,000 for home selling at a price of $300,000. As with
most transactions, this percentage is negotiable. I don't recommend that you
accept anything less than two percent.

Once the buyer and seller agree to the amount of the good faith deposit, you
have to figure out what to do with the deposit. Importantly, the seller
should not hold the deposit as doing so could make the buyer very
uncomfortable. Instead, the money should be deposited with a third party and
held "in trust." Potential third parties include escrow and title insurance
companies as well as an attorney if your state requires their involvement.

A good faith deposit acts like an insurance option for a seller. Moving
through escrow can take 30 to 60 days, during which the property is off the
market. The good faith deposit essentially compensates the seller for this
time in the event the buyer is unable to follow through on the purchase of
the property.

Depending on the laws in your state, a buyer who can't close will lose the
deposit. Typically, the only exception to this is when the seller allows
language indicating the deposit will be returned if the buyer can't get a
home loan. Of course, including such language can open the seller up to
repeated frustration when bad credit buyers repeatedly fail to get funding.
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