Prescott AZ Arizona – Real Estate Sales – Earnest Money
Considered one of the most important documents in a real estate transaction here in Prescott, it presents the terms of the transaction and sets out the legal rights and obligation of the parties. Although there is not a specific form to use for a real estate contract, the following paragraphs list the type of information usually included.
Earnest Money
When a buyer is interested in purchasing a property, they are often required to present the seller with a cash deposit to show their intent to complete the transaction. This is called earnest money and is held by the seller’s real estate broker, or by their attorney.
The amount of the earnest money is determined by an agreement between the buyer and seller, and usually, the contract will state that if the buyer defaults during the transaction, the money will be given to the seller. It’s important to note that earnest money is not a legal requirement for a valid real estate sales contract.
The rules for handling these deposits are set by state law, however they have the following elements in common:
- The money must be held in a special account such as an escrow or trust account
- Brokers cannot commingle (mix) their own money with the earnest deposit money
- Brokers do not need to open a seperate account for each transaction; one account can contain the deposits of several transactions
- The broker is not allowed to use the earnest money – it belongs to the buyer
- Complete records of all escrow account transactions must be maintained by the broker
- In order to release the funds, there must be written permission from both the buyer and the seller
Liquid damages refers to an amount of money to be paid as compensation if one of the parties breaches contract. These amounts are determined by the buyer and the seller. An example of liquidated damages is the forfeiture of the earnest money by the buyer to the seller if the buyer defaults.