In Oregon, the official offer to purchase real estate is called the Earnest Money Agreement (EMA). It is the buyer’s offer to purchase the seller’s property. The seven page contract outlines the terms of the sale and most importantly how the earnest money is handled throughout the transaction.
What is earnest money and how much do I have to put down?
Earnest money is the consideration that shows that you are serious about purchasing the seller’s property. It doesn’t have to be cash. It could be a cow or some other item of value. Let’s assume here that it is cash.
It is possible to put no earnest money down but very few sellers are going to let a buyer go through escrow with nothing to lose. As the buyer, your risk prior to closing, is the earnest money. If you back out of a transaction without cause or with a valid reason based on a contingency in the contract, your earnest money would, in most cases, go to the seller. If a seller changes their mind and doesn’t want to sell, the buyer can sue the seller for specific performance to sell the property (if you are in this situation, you shouldn’t be reading this: call a lawyer- now!).
Small claims court goes up to $5000. For that reason, we rarely see earnest money above that on most purchases. Sometimes, additional earnest money is given as contingencies are cleared and the closing date gets nearer.
In our market, buyers are putting up as much earnest money as they can. One percent of the purchase price is a rough guide; $2500 on a $200,000 purchase isn’t unreasonable. The EMA says when the money has to be deposited. Usually 72 hours after the offer is accepted. There are exceptions but most of the time, the buyer either writes a personal check that is held until the offer is accepted and then delivers it to escrow or the buyer makes a promissory note that is redeemed when the offer is accepted and the funds are deposited in escrow.
Escrow is a neutral third party and anything they do is based on matching written instructions. Once money is in escrow, both buyer and seller have to agree to move the money (or by court order). Just because the buyer thinks they are entitled to the earnest money back, the seller still has to agree. If a transaction is terminated, there will be some turnaround time in returning funds to you- it doesn’t happen on the spot. It can drag out and end in court months later.
There are exceptions to everything in Real Estate but it is usually spelled out in writing. It’s just how the writing is interpreted. Above all, know that you are entering a contract and it isn’t risk free.