Why Earnest Money and How Much!?

Q. I am saving money to buy a home, but I’m not totally clear on what the term “earnest money” means. What is earnest money?

A. First, let me commend you on saving money for a home. Buying a house is probably the most important purchase you’ll make in your lifetime – and having cash available gives you more options with your purchase.

Earnest money is an important factor when you’re making an offer on a house. When you make an offer to purchase a house, the “earnest money” is the deposit that shows the buyer you are serious about the purchase. The money opens the escrow and can be applied to the buyers’ down payment or closing costs.

The earnest money amount is negotiable. It typically varies depending on the price of the house and strength of the market. Generally, it’s recommended that your earnest money deposit be about two percent of your offered price. And although earnest money is not required by law in most states, it’s standard practice in real estate transactions.

When the seller accepts your offer and earnest money, the property is taken off the market. In a hot real estate market, a large deposit may impress a seller enough so they will accept your offer instead of someone else’s. However, buyer beware…it can also put you at significant financial risk if for some reason the transaction runs into trouble not covered by a contingency in your purchase agreement.

The Standard Offer And Purchase Contract stipulates under what conditions your earnest money will be returned if the contract fails. If you are in the market for a home and need competent and caring representation, please call me at 206-226-0565.