Earnest Money

Writing up a purchase offer is an important aspect of buying real estate. In addition to deciding on what price you would like to offer, you must also consider what size deposit you want to include with your offer. Many buyers are confused by the term “earnest money”, but simply put, this phrase refers to a monetary deposit offered to the sellers to show that a buyer is serious about purchasing the property.

There is no exact formula for determining the amount of earnest money to offer, but a good rule of thumb is to keep the deposit under two percent of the offer price. A deposit larger than two percent of the offer price may make your lender look into how you came up with this money. This can cause a hassle for you, as your lender may require extra documentation to show where you got the earnest money.

Another reason to limit the amount of money that you offer as an earnest deposit is in the case of a dispute between you and the seller. While this is not a common occurrence, if a dispute does occur, your earnest money will be tied up and at risk while the issues are resolved.

There are several situations where it may be beneficial to offer a larger earnest money deposit despite the potential risk involved. In a seller’s market a home may receive multiple offers on their property, and a large deposit may impress the seller enough to accept your offer over others that he has received. In some cases, a seller may also be willing to accept a lower purchase price if the earnest deposit is high enough.

Most real estate deals close without any issues between the buyer and the seller. In these cases, the earnest money deposit is usually applied to the buyer’s down payment and closing costs on the property. If you do encounter problems, do not hesitate to contact your real estate agent or mortgage professional. What may seem like a big problem to you is probably an issue that they have seen many times. They will be happy to assist you with resolving any issues.

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