What is an Escrow Deposit and why do you need it?
What is an escrow deposit?
An escrow deposit (aka earnest money) is a good faith gesture made by the buyer to the seller of real estate. This deposit indicates to the seller that the buyer is "serious" about purchasing the property. Based on the stage and terms of the contract, the buyer may not be able to get the deposit back if they do not wish to proceed with the contract.
How much money should be deposited into escrow?
In Southwest Florida, there is no standard percentage a buyer must put down for an escrow deposit. A real estate advisor will help navigate this portion of the contract as sellers may try to require a higher deposit to ensure the buyer is serious. Buyers should typically try to deposit the "least" amount of money in the event a unforseen issue happens during the contract.
On Sanibel and Captiva Islands, it is typical to have an escrow deposit of 10% of the sales price. In Fort Myers, Naples, Estero, Bonita Springs and surrounding areas, the escrow deposit is typically less.
Where does the money go?
In most real estate transactions, the escrow moneu is paid to an "Escrow Agent." This agent is typically a title company but could also be a real estate broker, lawyer or other entity that has paper accounting processes in place.
What does the escrow deposit get applied to?
If the buyer complies with all terms of the contract, the earnest deposit will get applied to the closing costs and will show up on the settlement statement.
If the real estate purchase is not completed, the buyer may be entitled to a refund of their escrow deposit. If the buyer complied with all of the terms of the contract but the transaction could not proceed, the buyer will have the escrow money refunded. In other cases, the seller may be entitled to the escrow deposit if the buyer did not meet their obligations.
Escrow deposits are common for Southwest Florida real estate transactions. Before signing any Purchase Agreements, please consult with your Pfeifer Realty Group Advisor who can help you determine the most appropriate amount to deposit.
Pfeifer Realty Group does not provide legal advice and this article is for informational purposes only.