Earnest Money's Importance in the Purchase of Your Property in Puerto Rico.
Earnest Money
What is Earnest Money?
In order for a seller to take you seriously and to show you are committed to buying the real estate property in Puerto Rico, you will need to make a deposit in the sum of 3%-5% of the agreed purchase price. In Puerto Rico 3%-5% is standard.
Why Is It Needed?
By providing this up front you are showing the seller that you are committed to buying his Real Estate property in Puerto Rico they have for sale and in return, the seller will not sell it to anyone else until the transaction is closed and funded. This can change depending on what the contract states, so please read it carefully.
Who Collects It?
Once the Contract has been signed by all parties, you must immediately provide the Earnest Money, which is usually held in the agents Escrow account that has been approved by DACO (Puerto Rico’s Consumer Protection Agency). This stays in their bank account, which is non-interest bearing until the transaction has been completed. At closing, you should get credit for this amount which will and should show clearly on the Closing Disclosure.
If you are not using a Real Estate agent, I would highly recommend that the Earnest Money is held in the account of the attorney that will be closing your transaction. Keep a copy of the check, a copy of the receipt, and put them both somewhere so you have proof of the Earnest Money you deposited. Also, I highly recommend that you review the contract to see what the conditions are regarding your Earnest Money, in particular to what the penalty is if you or the seller decided to back out of the transaction. This is Very Important.
What Happens to My Earnest Money?
Your Earnest Money will stay in the Escrow account until the transaction is closed and funded or if for some reason, the transaction falls apart. When you close and fund the transaction, the Earnest Money is credit back to you whether it goes towards the purchase price or towards closing costs. You will be provided a closing disclosure in which it will breakdown where all the money is going including your Earnest Money. We review each Closing Disclosure to make sure that you are protected, and all monies are accounted for.
If the transaction doesn’t close because of numerous reasons, you may or may not get your Earnest Money back. You need to review and carefully read your contract and see what the risks and penalties are that affect your Earnest Money. I have seen contract that have been written in ways to which no matter what happens, your Earnest Money is nonrefundable. It is ultimately your responsibility to review the contract and understand what you are signing. Your real estate agent should help you with this and if you want extra protection, I highly recommend hiring your own real estate attorney to review your contract to make sure you are protected.
