Q: Marsha, I’d been condo searching for six months. Finally, I made an offer that was accepted. Now it feels as if time is moving at warp speed. We close escrow in 30 days and all these terms, conditions, and “must dos” are being thrown at me. On top of everything, I had to put a significant “good faith” deposit into escrow. I worry I’ll lose my money if things go awry. My agent told me to relax. Am I worrying unnecessarily?
A: I know how you feel. You went from methodically looking at homes to being in a binding contract with terms and conditions that need to be adhered to in a timely manner. You feel like the 6th grader who missed the math week where how to reduce fractions was discussed. Now you have no idea what anyone is talking about. On top of that, you have money at risk!
When you initially made your offer, your agent told you that a good-faith earnest money deposit would be required. The amount of the deposit varies from county to county and local customs. In Santa Barbara, 3 percent of the offering price is the norm. If you choose to offer less than that, you risk having your offer rejected. Or, more likely, you will receive a counteroffer asking you to increase your deposit to 3 percent. The deposit is not your down payment; however, it will be taken into account as part of your down payment.
There is a reason for the 3 percent amount. I won’t go into detail here, but it has to do with a “liquidated damages” contingency in the contract. If both buyer and seller initial the liquidated damage contingency, it is agreed that the seller will not sue the buyer for more than 3 percent of the contract should this real estate transaction go really, really south. That sounds scary, but transactions rarely fail that badly.
What you really want to know is: under what circumstances do I get my deposit back, and when can the seller claim my money?
With most contracts, there are contingencies, which must be approved by the buyer for the sale to complete. You are purchasing a condo. The three important contingencies that must be met are: the physical inspection and condition of the condo; the financing for the sale must come through; and finally, you have to approve the CCRs, conditions, covenants, and regulations for the condo association. If any of these contingencies aren’t released by you, then the sale will be canceled and your good-faith money returned.
When can the seller keep your deposit? Once you release all contingencies, the seller is assured the sale will be completed. If you now cancel the contract, the seller will be within his rights to demand and keep the deposit. Surprisingly, even when they have the right, most sellers still release the deposit. They simply want to quickly put the home back on the market and get it sold.
As your Realtor said, relax! You are on track to purchase your condo, and your deposit money is safe.
Marsha Gray, DRE #012102130, NMLS #1982164, has been a real estate broker in Santa Barbara for more than 20 years. She works at Allyn & Associates, real estate services and lending. To read more Q&A articles, visit MarshaGraySBhomes.com. She will research and answer all questions submitted. Contact Marsha at (805) 252-7093 or MarshaGraySB@gmail.com.