If you are in the market to buy a home, whether in Barrington or anywhere here in Northern Illinois it might surprise you to know that earnest money is not a requirement. Therefore there is also no minimum, no maximum either. In recent years it seems that buyers have started to get a little wimpy on earnest money. What do I mean by that?
The definition of wimpy is feeble, lack of force. Imagine that you are buying a home that’s costing hundreds of thousands of dollars and you want to send a clear message to the seller. You mean business, your intention is to buy their house. You make an offer which has more than just a price, it also has purchase terms. Any property seller wants not only the right price but strong signals from a buyer that the intention is strong, not feeble. One of the best ways to convey this is earnest money.
The real estate market in Barrington is slowly turning. We have price pockets and houses going under contract fast, then there are price ranges that are still slow to sell, that’s quite normal once you get into houses in the millions of dollars. Back to the faster moving inventory. It might surprise you to know we are getting multiple offers on homes at the same time. As a Realtor we must present every offer made from listing to closing. If the offers arrive at the same time, and this is quite common now for some of the fabulous homes being listed in Barrington, if you are a buyer, you are in a competition.
Earnest money can win a home buying competition.
The median price in Barrington is rising, we are inching back to $700,000 again. So let’s use that price as an example. You are about to commit seven hundred thousand dollars to buy your dream Barrington home. Just think about that for a bit. It’s a lot of money. Whether it’s all cash or part cash and part mortgage, you are going to be paying it. Quite an investment right? You want the house and so does someone else. Is an earnest money offering of $5,000 a strong or feeble amount to offer in support of your offer? In my mind it’s quite feeble. Now imagine a seller is offered the same amount on a $1.5 million property. It’s almost telling them that you don’t really want to commit to the purchase.
I am not sure why as a buyer you want to offer such little strength. Flip it around and become the seller for a bit. Let’s say you are selling the $700,000 Barrington house and your Realtor calls to let you know she has three offers she would like to present to you. They are all very close to asking price, everyone needs a mortgage and no-one has to sell a house first. So the terms and conditions are all more or less the same. Now we get to earnest money and here are the choices:
The first buyer wants to give you $2,500 with the contract and the other $2,500 after home inspection and attorney review are completed. (That’s a typical 10 business day period here in Illinois and can be extended.) The other two will give all their earnest money with the offer.
- Buyer number one seems to be running scared!
- Buyers 2 and 3 are more committed.
- Buyer number 3 is making his offer as strong as he can.
I know which one I would be looking at first, don’t you?
Three years ago my clients bought that $1.5 million property and I encouraged them to deposit $50,000 as earnest funds. Turns out we were in a 4 horse race for the house and we won. Buyers need to remember that earnest money is part of an offer and taken into consideration by sellers. Ultimately it’s the sellers choice about whether they’ll proceed on the basis of low earnest money, but they may decide not to, especially if the property is hot and getting a lot of showings.
Home Buyers – What Are You Afraid Of?
I wonder why earnest money is declining in the amounts being offered. Perhaps it’s a misunderstanding of the purpose of earnest money. Maybe there’s an inherent fear the home buyer won’t ever be able to have it returned in the event the transaction fails to proceed. Do home buyers think the money actually gets given to the home seller?
It’s likely that home buyers do not fully understand or worse yet have not had earnest money procedures explained to them. Either that or they are scared. All I can say is find out what happens to your earnest money, where it goes, what Illinois laws are protecting it during the transaction and under what circumstances it may or may not be returned.
Now you are better informed, make a strong offer and stop with the wimpy earnest money offerings, you might well lose your house!
Contact a Barrington Realtor Today.
Call or send me an email if you would like to discuss how I can best serve your Barrington Real Estate needs!
Corinne Guest, Realtor® and Managing Broker/Owner
Barrington Realty Company
Barrington, IL, 60010