Earnest Money Deposits :. NC Pittsboro: Cindy Brudvik Davis - RE/MAX Southern Advantage Pittsboro, Chatham County NC, Pittsboro NC

Residential Real Estate Earnest Money Deposits in Pittsboro, Chatham County, and the NC Triangle

Since different types of payments made before closing are not treated the same in all transactions, it is important to understand the purpose of earnest money and how it will be handled during the residential real estate transaction in Pittsboro, Chatham County, and the NC Triangle. This is usually spelled out in the residential real estate sales contract.

Therefore, you should always read the contract or offer to purchase before paying any money. As your buyer’s agent, I will thoroughly review the Offer to Purchase and Contract with you. If you do not understand the purposes and disposition of any payment or any other terms in the contract or offer, you should consult your attorney.

Here are Questions and Answers, from the perspective of a buyer who has hired me to represent them as their real estate buyer’s agent, regarding payment of earnest money deposits for the purchase of a home in Pittsboro, Chatham County, or the NC Triangle:

Question: What is “earnest money”?
Answer: It is money you give to the seller (or the seller’s real estate agent) to show your good faith when making an offer to purchase the seller’s home or real estate.

Question: Do I have to pay an earnest money deposit to have a valid contract?
Answer: Although in North Carolina no law requires it, sellers typically do require it. If you agree to pay earnest money but do not make the required payment or your earnest money check “bounces”, you will probably be considered in breach of the contract.

Question: How much earnest money should I pay?
Answer: The amount is negotiated between you and the seller. It is typically a small percentage of the purchase price and can vary depending upon local market conditions, the price of the property, the type of property (e.g. vacant land, existing housing, or new construction), whether cash advances to a builder or seller are involved, and other factors.

Question: What happens to the earnest money before closing?
Answer: The purchase contract governs where earnest money will go. It should also specify the amount(s) to be paid, when the payments are to be made, whether the money will be held in a trust (escrow) account, who will hold it, whether it will be credited against the purchase price at closing, and what may happen to it if the transaction does not close.

Question: Will my earnest money earn interest between contract and closing?
Answer: Probably not. Most earnest money is held by real estate brokers in non-interest-bearing trust or escrow accounts. In order for money to earn interest, the buyer and seller must agree, and they also must determine who will earn the interest. Such an agreement should be included in the purchase contract and may require the assistance of an attorney to prepare.

Question: Who can hold earnest money?
Answer: In North Carolina, any person (or entity) agreeable to you and the seller, but usually a licensed real estate broker. As a home buyer, be aware that if you allow earnest money to be held by a seller or by a builder or developer for use in construction, you risk that they will not be able to return it to you in the event the transaction does not close (due to the seller’s death, divorce, bankruptcy, judgment liens, receivership, fraud, tax liens, title problems, etc.) Consequently, most buyers prefer to have real estate agents or attorneys hold the earnest money deposit. Since they are licensed by the state and required to deposit the money in a trust or escrow account, this reduces the risk that the monies will be improperly used. In Pittsboro, Chatham County, and the NC Triangle, it is common practice for the listing agent’s firm to hold the earnest money in a trust account.

Question: Under North Carolina's Standard Offer to Purchase and Contract, who holds the earnest money?
Answer: The North Carolina standard contract form permits the parties to select who will hold the money; in Pittsboro, Chatham County, and the NC Triangle, this is typically the listing agent’s firm. Whenever a licensed real estate firm or agent holds any earnest money, it must be deposited in a trust or escrow account until closing.

Question: Is earnest money the same as an option fee?
Answer: No. The “option fee” is a separate fee the buyer may choose to pay for the right to walk away from the transaction during a specified period of time. While earnest money may be refunded under certain circumstances (see below), the option fee is nonrefundable.

Question: What if the North Carolina standard contract is not used?
Answer: Many developers, builders, employee relocation services and lenders’ asset managers use their own real estate sales contract form. Many will require you to make an earnest money deposit or similar deposit, but they may differ from the standard contract form in how it is to be handled. For example, unlike the standard North Carolina Offer to Purchase and Contract which contains inspection and repair provisions, title requirements and other protections, there may be no provision allowing you to obtain a refund of the earnest money under any circumstances. Therefore, you must read every contract form carefully and consult with your attorney if you have questions.

Question: If a contract contains a rescission (“cooling off”) period, can I get my earnest money back if I cancel the contract during that time?
Answer: Probably; however, most real estate purchase contracts in Pittsboro, Chatham County, and the NC Triangle do not have a rescission period. Only in certain kinds of transactions will you be allowed (for a limited time) to cancel the contract. These transactions include developer offerings of condominiums, time-shares, and interstate land sales; and where a seller fails to give you certain disclosures in a timely manner. The amount of time varies but is typically only a few days. As your buyer’s agent, I will thoroughly review the Offer to Purchase and Contract with you. You should consult your attorney if you have further questions about rescission rights in such transactions.

Question: Isn’t there a federal law that allows me to rescind my home loan and get my earnest money back?
Answer: No. Although there is a federal law that gives you three days to cancel a home loan commitment, it does not give you the right to cancel a real estate purchase contract and get a refund of your earnest money. Your obligation to purchase as set forth in the real estate sales contract is unrelated to your right to obtain the best possible loan or avoid a loan that has hidden conditions. Even if the real estate sales contract has a financing contingency clause, your cancellation of an approved loan is not one of the conditions that would release you from the sales contract.

Question: Under the standard North Carolina Offer to Purchase and Contract, do I get my earnest money back if the transaction does not close?
Answer: It depends on why the contract isn’t consummated. For example, the North Carolina standard contract typically includes various conditions and/or contingencies which must be met for the contract to proceed. These may include the requirement that you make a good faith effort to obtain necessary financing or to sell you own property; or that the seller make certain repairs and provide good title. If the seller does not meet his requirements, you may be entitled to a refund. On the other hand, if you breach the contract, you may forfeit the earnest money deposit. The party injured by the breach may also seek additional damages or try to enforce the contract by asking for “specific performance” where a court is asked to compel the breaching party to perform their promise – either to purchase or to sell. If your purchase contract does not close, you should consult your attorney over the remedies that may be available.

Question: What if the contract fails and the seller and I cannot agree on who is entitled to the earnest money?
Answer: According to the terms of the North Carolina standard Offer to Purchase and Contract and the rules governing real estate brokers in North Carolina, if there is a dispute between you and the seller over the return or forfeiture of an earnest money deposit, the real estate broker holding the money must continue to hold the funds in trust until you and the seller resolve the dispute in writing or until a court decides the matter. Alternatively, the real estate broker holding the money may choose to pay the disputed funds to the Clerk of Court in the county where the property is located, after first providing 90 days written notice to you and the seller.
If the disputed funds are deposited with the Clerk of Court, you would have to initiate a special proceeding with the Clerk to recover the funds. If no one institutes a special proceeding within a year of the funds being deposited with the Clerk, it will be deemed unclaimed and delivered to the State Treasurer’s Office as escheated funds.
If an attorney for you holds the earnest money, the attorney must hold or dispose of the funds in accordance with the rules of the North Carolina State Bar. When a contract form other than the North Carolina Standard Offer to Purchase and Contract is used, it may allow the seller access to the money whether or not the closing occurs as scheduled.

Cindy Brudvik Davis, RE/MAX Southern Advantage, a full service real estate agent in Pittsboro, Chatham County, will work on your behalf to actualize your real estate and home ownership goals in the following NC Triangle towns and communities:

Apex (Chatham and Wake Counties)

Carrboro (Orange County)

Cary (Chatham and Wake Counties)

Chapel Hill (Chatham and Orange Counties)

Fearrington Village (Pittsboro in NE Chatham County)

Governor's Club (Chapel Hill, Chatham County)

Graham (Southern Alamance County)

Holly Springs (Wake County)

Morrisville (Wake County)

Pittsboro (Chatham County)

Raleigh and North Raleigh (Wake County)

RTP (Research Triangle Park)