Considered as a touchy issue in a real transaction is how much trust the seller has in a buyer. Because of the existence of a good faith deposit, a seller can be put at rest.

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 simply establishes that the buyer is serious and, to some extent, has the financial capacity to follow through on the purchase.

Dependent upon the agreed sale price of the real estate is the amount of the good faith deposit. A cash deposit that is equal to 3% of the sales price is typical even though percentages may vary from state to state. For example, if you sell a home for the price of $300,000, then the deposit would be $9,000. As with most transactions, this percentage is negotiable. Remember that it is not a good idea to accept anything less than 2%.

When the buyer and the seller have agreed to the amount of good faith deposit, then your next step is to find out what you are going 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.“ Potential third parties include escrow and title insurance companies as well as an attorney if your state requires their involvement.

A good faith deposit acts like an insurance option for a seller. Moving through escrow can take 30 to 60 days, during which 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.

Depending on the laws in your state, a buyer who can’t close will lose the deposit. The seller allowing language that indicates the deposit will be returned if the buyer can’t get a home loan is typically the only exception to this. Of course, when bad credit buyers repeatedly fail to get funding, then including such language can open the seller up to repeated frustration.

A fundamental part of a real estate transaction are good faith deposits. Sellers should demand them while the buyers are expected to pay them.

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