Real Estate Transactions What Are Good Faith Deposits

Posted by publisher on August 29th, 2011

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

What You Need to Know about Good Faith Deposit

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

The agreed sale price of the real estate is where the amount of the good faith deposit will depend on. From state to state, percentages may vary but a cash deposit equal to 3% of the sales price is considered typical. For instance, the deposit would be $9,000 for home selling at a price of $300,000. This percentage is negotiable, just like with most transactions. It is not recommended 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. Another thing to remember is that the seller should not hold the deposit because if he did, it could make the buyer very uncomfortable. Instead, the money should be deposited with a third party and held “in trust.” Escrow and title insurance companies as well as an attorney if such an involvement in required in your state are what you can consider as potential third parties.

A good faith deposit acts like an insurance option for a seller. Moving through escrow can take at least 30-60 days and during this time, 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.

A buyer who can’t close will lose the deposit but this will depend on the laws in your state. Typically, there is one exception and that’s when the seller allows the language indicating the deposit will returned if the buyer can’t get a home loan. But by including such a language, the seller can be opened up to repeated frustration when bad credit buyers repeatedly fail to get funding.

When it comes to real estate transactions, good faith deposits are a fundamental part. Buyers should expect to pay them and sellers should demand them.

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