Frequently Asked Questions from Buyers and Sellers

What is Earnest Money? Why does a buyer need it? Why would a seller want it?

BUYERS
I'm under contract to buy a home.  What will happen at the home inspection?

SELLERS
Should I be present during the Appraisal and Inspections?

 

What is Earnest Money? Why does a buyer need it? Why would a seller want it?
Earnest money is kind of tough to explain, sometimes.  So we asked a few experienced agents for their favorite "one-liners" to help describe it, and here are a few good answers:
"It shows you’re making an offer in good faith."
"It's like getting engaged without a ring.""
It's a deposit you put down to show that you're serious about the house so the sellers comfortable taking their property off the market. It is credited back to you at closing."

So...in the state of North Carolina, our OFFER TO PURCHASE & CONTRACT (Form 2-T), has several lines under the "Sales Price," and Due Diligence Fee and Earnest Money are two of them. The DD check gets written directly to the seller and is usually not refundable in most circumstances.  The Earnest Money Deposit, or EMD, on the other hand, gets written to the Escrow Agent - usually the closing attorney.  The attorney WILL CASH THE CHECK, so it must be good funds, and they'll hold it in their "trust account" or "escrow account" throughout the transaction.  If the buyer cancels the contract "for any reason or no reason" BEFORE THE END OF THE DD PERIOD, then the EMD is completely refundable to the buyer.  However, if the buyer does not cancel the contract before the end of DD (intending to close), then the EMD will go to the seller--either at the closing as a credit toward the Sales Price, or to the seller as consideration for the buyer breaching the contract and not closing.

Sellers want to get as much Earnest Money from buyers as they can, because it shows the buyer will have some skin in the game, and at least some financial wherewithal to complete the transaction.  Buyers give some Earnest Money to show sellers they are serious.  EMD is a moving part on our contract that is negotiable.  In a hot sellers' market, sellers will get more earnest money.  In a buyer's market and sellers are desperate, they will take contracts with very little or even no earnest money.
 

I'm under contract to buy a home.  What will happen at the home inspection?
When you are BUYING a home, the homebuying process looks something like this: Get pre-approved for a mortgage, find your "dream home" and win the bidding war. But before you can move those boxes in and start enjoying your new property, you have one more major step to take: the home inspection. 

A home inspection isn't an appraisal. In fact, an inspection has nothing to do with your home's value -- or how much your lender is willing to finance. It's simply a way to assess a property's safety and long-term viability. 

Here's what you should know about home inspections: 

What it is: A home inspection is an independent, third-party evaluation of a home's structure, systems and features. The inspector will look for potential problems or deficiencies on the property. 

Why you need it: A proper inspection ensures the home is safe to live in and helps you examine the condition of the entire property you are considering.  A good home inspector will find problems (and features!) that you should know about to help you decide if the home is a good investment for you and your needs. 

When it happens: Home inspections generally occur after the seller has accepted your bid but before closing day. This gives you the opportunity to withdraw your offer, should there be any major issues with the property. 

What's covered: A home inspection includes the roof, foundation, insulation, appliances, HVAC systems, plumbing, electrical systems and more. 

How you're involved: You are not required to be on-site, but it's in your best interest to be there. The inspector can walk you through any defects he or she finds. 

The home inspection is designed to protect you, your family and your investment, so choose your inspector carefully. Make sure the home inspector is experienced and licensed and insured where required. And don't forgo an inspection just to save a little cash. If anything, a home inspection report can give you extra leverage in negotiations.