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Ask Andrew: What You Need To Know About Deposits

By WTOP Staff

Ask Andrew

This sponsored, biweekly Q&A column is written by Andrew Goodman, broker/owner of Goodman, Realtors. Based in Bethesda, Andrew serves clients in Maryland, D.C., and Northern Virginia. Please submit comments, questions, and opinions in the comments section or via email.

Question: What is a deposit and what is an appropriate deposit amount to submit with an offer?

Answer: A deposit is a form of consideration, which makes a contract valid. A contract has to have some form of a deposit for it to be considered a valid and enforceable one. A check is the most common form of a deposit.

A deposit, otherwise known as an Earnest Money Deposit (or EMD), is submitted with an offer to show good faith to the seller that the buyer has no intensions of walking away from the transaction. This holds the property for the buyer through the purchase process so no other buyer can snatch it out from under them.

The amount of the deposit can vary depending on the purchase price and the market.

One percent of the purchase price is usually the rule of thumb for making a deposit on a residential property. However, the higher the deposit the stronger the offer is.

For instance, if the offer price is $100,000, the seller may not accept a $1,000 EMD because $1,000 is probably not enough money to prevent a buyer from walking away from a contract.

From a seller’s standpoint, the deposit should be enough that the seller feels the buyer would think twice before walking away. As a buyer’s agent, I always recommend at least a $5,000 deposit. If you were purchasing a $1 million house, I would recommend at least a $20,000. Again, the higher the deposit the stronger the offer.

From a buyer’s standpoint, the buyer obviously wants to keep the EMD as small as possible. Not too small — as the buyer still wants to be taken seriously by the seller. But small enough that in the event the worst happens, the buyer wouldn’t be in a really bad situation if he or she were to lose the deposit. In a “hot” market, the buyer can use a strong deposit to make his or her contract stand out from the pack and may even sway a seller into choosing that offer over another.

Remember, there are most likely contingencies in the contract to prevent the buyer from losing his or her deposit if the transaction were to fall apart. Your Realtor should be able to advise you as to which contingencies should be used in your offer. All of the contingencies used are to prevent the buyer from losing the deposit or securing the seller’s investment.

Once an offer is accepted, the deposit is placed in an escrow account. Typically, the deposit is held in the settlement company’s escrow account. The funds from the buyer’s deposit check will go toward the amount the buyer owes at settlement. This could go towards the buyer’s down payment, and perhaps their closing costs.

A Realtor’s job is to protect the interests of the client, including that client’s deposit. Follow the advice of your Realtor to determine the best way to protect your interests and prevent potential problems.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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