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When you purchase real estate, you must put down a good faith deposit. Several factors determine how much you will need to put down, but it could be as little as $100. In order to have a valid contract, the contract must have “consideration,” or something of value exchanged for the contract. The good faith money also shows a seller that you are serious about purchasing the property.
You usually give the good faith money to your real estate agent. The agent puts the money into an escrow account. If you are buying a newly built home, you might give the good faith money to the builder. However, if you are working with a real estate agent to buy a newly built home, in most cases, it’s better to give the deposit to the real estate agent.
In most cases, your good faith money is not refundable. This ensures that you are serious about buying the property and not just “tire kicking.” However, a real estate purchase contract has several exceptions. In addition to the exceptions that might be in the contract, you can add your own as long as the seller agrees. The most common exceptions are your ability to get financing and that the seller did not misrepresent the condition of the home. As long as you can meet an exception, your money is refundable.
Most sellers like to see at least $1,000 down. However, a seller might require a percentage of the selling price. Whichever amount the seller wants, it must be stated in the purchase agreement. If you want to change the amount of the good faith money, the seller has to agree to it or you won’t have a contract.
Once you close, the real estate agent forwards the money to the seller as part of your down payment. The amount is shown on your closing documents and is subtracted from the final agreed-upon selling price of the home. For example, you buy a house that is $250,000 and you put down $5,000 as good faith money. Your lender requires 20 percent down, so you give the lender $50,000 at closing. Your documents will show that you paid a total of $55,000, so your loan will be $195,000 plus closing costs.
The closing costs could be subtracted from your down payment, the good faith deposit or added back into the loan, depending on what you and your lender agree to. Regardless, the amount of your down payment is $55,000, even if some of it is used for closing costs.
If you have any questions about how your real estate agent handles your good faith deposit, be sure to ask. You should always ask about exceptions to ensure you can get your money back if the loan does not go through or if the house was misrepresented by the seller and/or their agent.
As a Top Producer in Chicagoland for 19 years, Gibbons wanted to share her love of SW Michigan with her clients and friends and now is dually licensed in Michigan and Illinois. Gibbons leverages the global power of Sotheby's International Realty alongside her proven local knowledge to consistently provide all her clients a world class experience. Gibbons has a deep understanding of marketing and the business of real estate. Gibbons has over 28,000 followers on social media and believes in leading with the giving hand. As Past President of Women’s Council of Realtor’s Chicago, NAR committee member, and Green realtor, Judy loves nothing more to give back to the communities which have given her so much! Judy and her husband fell in love in and with Harbor Country 20 years ago! They purchased a home in Lakeside 5 years ago and created a successful Airbnb in Lakeside. The Gibbons crew of 5 children and 2 grandchild love to spend time at Dunedin Cottage too. Judy is ready to help you with all your Harbor Country real estate needs.
Designations/Licenses: Certified Distressed Property Expert, Broker, GREEN
Town Coverage: Chicago, Illinois, Arlington Heights, Illinois, Barrington, Illinois, North Barrington, Illinois
