Boulder City Magazine is a monthly publication full of information about Boulder City and Southern Nevada. Boulder City Magazine features the Boulder City Home Guide, a real estate guide to Boulder City and Southern Nevada.

Lawyer's Edge
by Rodney S. Woodbury, Esq.
Woodbury, Morris & Brown

The Importance Of Being Earnest
In a real estate purchase transaction, earnest money is the initial deposit or down payment made by the buyer. It is called earnest money because it shows that the buyer is earnest, or serious, about purchasing the property. Accordingly, the buyer usually forfeits this money to the seller if she breaches the purchase contract or otherwise fails to go through with the deal. Without earnest money, the seller normally would not be willing to take the property off the market pending consummation of the sale.

The deposit is made at the time the purchase contract is signed or within a few days thereafter. These funds are typically held in an escrow account with any interest credited to the buyer, but occasionally the deposit is paid directly to the seller. Either way, the deposit is almost always credited against the purchase price at closing.

The amount of the deposit depends on a variety of factors, including the purchase price, how “hot” or active the market is, whether the property is residential or commercial, and how long the buyer’s inspection period will last. Absent a lengthy inspection period or a very competitive market, the amount is rarely more than a few thousand dollars in a residential transaction or one (1%) percent of the purchase price in a commercial transaction. Regardless, it should be enough to compensate the seller and penalize the buyer if the buyer ultimately breaches the contract or walks away from the deal.

Remember that the terms of the earnest money deposit are negotiable so nothing is set in stone until it is written into the contract. In other words, the buyer and seller have the ability to determine the amount of the deposit, whether to establish an escrow, whether the deposit will be placed in an interest-bearing account, who gets credit for that interest, the extent to which the deposit will be refundable, and even whether a deposit will be required at all. Many factors play into these often-difficult and complex decisions, so if in doubt, contact a qualified attorney.

Rod Woodbury is with the law firm of Woodbury, Morris & Brown, serving the Boulder City, Henderson, and Las Vegas areas. Call 933-0777.




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