Risk to your Good Faith Deposit Money
Ernest Money Deposit (Good Faith Deposit) is deposited into escrow after the offer has been accepted to demonstrate to the sellers that you, the buyer, have the desire and the financial ability to complete the deal. The buyer puts in a substantial deposit (3% in Silicon Valley) to show that they are committed to the offer and will not simply walk away.
In exchange, the seller will essentially take the property off market by putting it into contingent/pending status. Once a property is in contingent/pending status, the interest level from buyers will drop dramatically, as they know the deal is in escrow and scheduled to close. This is the riskiest time for sellers if there are contingencies which the buyer can use to back out of the deal and get a full refund of the deposit money. No seller wants to be put into that situation where the property has to be put back on market and deal. Once re-listed on market, the property will have very little chance of getting better price and terms than the first offer.
A buyer who cannot put together 3% of the purchase price within a couple of days is not seen as a credible buyer who can complete the escrow in a timely manner. Both sides are not sharing the risk in “good faith.”
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