Earnest Money for a New House!!!!!!!!!!!!!?

Question

I need some advice with the following:
My husband and I are planning to buy a new house that hasn't been built in Houston, Texas.
The cost of the house is $230,000.00. They are "giving us" $10,000.00 in incentives, but they are asking for $10,000.00 as earnest money. Everybody that I've ask about it, tells us that the amount is just outrageous.
What do you think?

KL is talking about escrow....What's escrow????

Hey Amanda, thanks for the answer but the builder asked us to write the 10K check on their name. Should we do this?

Answer 1

First, $10K is a bit high for an earnest money on 230K. Some ask for up to 3% or so, but even that is under $7K. (this, of course, is in MY AREA, so it may vary.)

That said, on new construction sometimes they ask for more, becuase you will be 'tailoring' the home to your needs and they risk doing that and then not closing.

Now, you asked what "escrow" is, so you must be a first time buyer? Escrow is the company that coordinates the closing of your home-- they are where you got to sign all paperwork, and they hold the earnest money or deposit for you. (You DO NOT give this directly to the seller.)


Some people think that the seller "gets" the earnest money, likes its a bonus or something. The escrow company holds it, and only if you were to default on yoru agreement by not following through with the sale for a reason NOT covered under your contingencies (Like, if you did it contigent on selling your old house and it didnt sell, you get to back out and you get to keep your earnest money.)

If this is a 0 down home loan, you would get your $10,000 back at closing (Unless there were some overages on closing costs and they deducted a little bit) in the form of a check from the escrow company.

If you are doing a down payment, the $10K would be credited towards that and you would just bring the remainder on closing day. (Like if you planned on 30K down you would just bring another 20K).

In other words, if you have 10,000 and this is th eonly thing to squabble about, there is no risk to you to use that 10K as earnest money. Just dont default on your purchase and sale contract or they could keep your money.

Answer 2

Not at all...most builders want a solid commitment before they start the construction. $10,000 is actually a pretty low Earnest Money Deposit...it's not even 5% of the total purchase price and this money will go towards the downpayment. It will be held in escrow until the house is completed and you close on your loan, so it's not like the builder is making money off it.

Answer 3

Are you people serious?! $10,000 earnest money is not just ridiculous, but I would seriously question what kind of builder this is! Earnest money is not just to protect the builder, but also to protect you, the buyer!

There are many unscrupulous people builders out there and earnest money assures that you the buyer can start the process of building a house, and get the ball rolling without risking too much...$10,000 is TOO much...WAY TOO MUCH! Too much in general, but especially without even having a product (the house) to see and verify construction was done correctly and to your standards, again another point of earnest money. If you just don't like that house after it's built, it's your decisions to back out! Imagine if things go south with the builder, which they Very VERY often do! You SHOULD NOT risk $10,000...I beg you to go to a different builder! A normal earnest money amount is $500-$1000, NO MORE or, sorry to say, you are a sucker and are GOING TO GET SCREWED!

Answer 4

An escrow account is where the money is held until closing, usually by the seller, in this case builder. It is not at all outrageous to ask for a $10,000 EMD. This just shows the builder that you are serious, especially when it is a new build.

Answer 5

I agree with Karen it sounds reasonable. Remember what an earnest money is for. An earnest deposit is nothing more than the money you are willing to risk in the event that you do not meet the terms you have agreed to in the accepted contract. In the event that you do not meet those terms bye bye earnest deposit. If on the other hand you meet the terms and you do the closing the accepted contract will show how the earnest deposit money will be applied at closing.
Buena Suerte

Answer 6

$10k in earnest money is not unreasonable. It's not even 10% of the purchase price and that was the standard less than 20 years ago. The earnest money should be deducted from what you owe at closing so as long as that happens, this is fine.

Answer 7

$10K earnest money as in a deposit you deposit to secure the offer on the house. If you back out after a certain amount of days then you would lose the deposit money. It's normal to put 5-10K deposit on a new brand new built. Just make sure you read what you're signing and see how many days you have to back out just in case you change your mind.

Answer 8

Considering the price of the house and where it is that really doesn't sound out of line to me.

Answer 9

$10,000 sounds ridiculous! That value will change from market to market. Call a few agents and ask their opinion. If you know one or two, that might be a good test.

Another good source might be a Real Estate lawyer (although I like to limit my exposure to them...)

Answer 10

Sounds reasonable to me for new construction that you will be making the color, fixture choices etc.