How Much Earnest Money?

Earnest money is the deposit buyers make to secure an offer on a property. There is no standard amount of earnest money a home buyer is required to put down, the amount of the deposit and conditions placed on it are meaningful. The amount is entirely the buyer’s decision.

From a seller’s perspective, earnest money conveys how dedicated the buyer is about the purchase and the buyer’s ability to successfully close a deal. The more earnest money the better. My rule of thumb is for buyers to put at least 3% of the asking price down. You will need to provide the earnest money within three days of offer acceptance.

Earnest money is placed into an escrow deposit and managed by the listing agent, title company or an attorney involved in the deal. The money you’ve placed in escrow as earnest money goes toward the total amount of cash you pay at closing, including your down payment for a mortgage and closing costs.

The point of earnest money is to give the seller some financial compensation if the buyer backs out. There are, however, a couple scenarios where the buyer gets the earnest money back: If the lender denies the mortgage loan at the purchase price, or if contingencies like the inspection don’t clear.

I have seen earnest money play a more in today’s hyper-competitive market, with buyers releasing earnest money to sellers immediately and without condition. Timing and conditions around the release of earnest money are great deal points to consider, but I strongly advise against immediately release without any conditions. In that scenario the deal could fail for any reason, including the seller backing out, and it would be very difficult to get the earnest money back.

Earnest money won’t make or break your deal, but in a competitive situation it may be the edge you need to win the home of your dreams.

Contact me if you have additional questions about earnest money or if I can help in any way.