Terms and Conditions

Earnest-Money Deposit

The offer may be accompanied by a sum of money—called an earnest-money or good-faith deposit. Sometimes the deposit is paid in two parts: a flat fee (such as $500 or $1,000) when the offer is submitted, and the rest, usually a percentage of the purchase price, when the contract is signed. The idea is that a buyer who backs out of the deal for a reason not contemplated in the contract will forfeit this sum (otherwise, the money is typically applied toward closing costs). A higher deposit, means less risk for you.

Down Payment Amount

The offer should state how much the buyer plans to pay in cash toward the purchase price. the higher the down payment (ideally, 20% or more), the greater the chances that the loan will close successfully. Also, look at when the buyer plans to make the down payment (such as 10% down within first two weeks of signing the purchase agreement and the remaining 10% at closing).

Financing Contingency

Almost as important as the offer amount is how the buyer plans to pull together the rest of the money, and the chances for getting a bank loan for that amount.

Unless you receive an all-cash offer (unlikely), the buyer will probably include a financing contingency in the offer. This states that the agreement will be finalized only if the buyer applies for financing within a certain time period and then successfully obtains a loan on certain specified terms, such as a loan at a maximum interest rate.

Here’s how to evaluate a financing contingency.