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MA Escrow Deposits and Home Buyer Risks

MA escrow deposits are a standard requirement for  home purchases. The amount of the deposit is important for several different reasons. Before you decide what escrow deposit amount to include in your offer to purchase a home, there are a few things to consider.

Leverage in Bidding Wars

In Eastern MA, many markets are extremely competitive right now. This means multiple offer situations and quick sales. Including a higher escrow deposit in your offer could make it more appealing to home sellers. Why? First, it shows that you are a financially sound buyer. Secondly, it provides the seller with additional compensation in certain scenarios. On the other hand, as a buyer, higher escrow deposits means more risks. Here’s why…

Potential for Losing MA Escrow Deposits

MA escrow deposits are also referred to as good faith monies. You are presenting it to show your good faith effort in moving forward with the purchase of a property. The deposit is normally held by the listing agency or attorney until closing. There are several scenarios where you could lose your deposit (or more accurately, where the seller will fight/sue to keep your deposit money).

  • You simply change your mind about purchasing the home.
  • You cannot close by the deadline and the seller refuses to approve an extension.
  • You do not receive final mortgage approval and the mortgage commitment deadline has already passed. A few reasons why final approval may not be issued are…
    • You lost your job.
    • You incurred additional debt and no longer qualify for the loan.
    • One or more co-buyers passed away before the closing.
    • Your job offer was rescinded and relocation to the area was cancelled.

What Escrow Deposit Amount Should You Select?

There are really no set amounts for MA escrow deposits. However, there are common practices in certain markets. Your MA real estate agent can provide you with guidance on this. Essentially, you want to include as low a deposit as possible while still being reasonable and competitive with other buyers.

Some home buyers confuse the deposit with the down payment on the mortgage. Your deposit does NOT need to equal your down payment. For example, if you’re putting 20% down on your mortgage, you really should not offer a 20% deposit in your purchase contract. That poses way too much risk for you as a home buyer.

Contact us if you have any questions about your legal risk when it comes to escrow deposits or any other aspect of the home buying process. As MA real estate attorneys, we specialize in counseling home buyers in minimizing risks and protecting their best interests in the purchase of a property.

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Attorney John J. Martino offers a broad range of legal services in Eastern MA and Southern NH. As a highly dedicated and experienced professional, he handles cases under the following areas of practice:

Estate Planning

Family Law and Divorce

Real Estate Law

Probate Proceedings

Business Law

Personal Injury

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