If you’re new to the real estate game, earnest money may not be a part of your vocabulary. It’s an important part of the home buying process, so let’s get you familiar!
What is an earnest money deposit?
According to Investopedia, “Earnest money is a deposit made to a seller that represents a buyer’s good faith to buy a home. The money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing. In many ways, earnest money can be considered a deposit on a home, an escrow deposit, or good faith money.”
Earnest money comes into play either with the initial offer on the property or when the sales contract is signed. Your earnest money deposit will most likely be held inside an escrow account until closing where it is kept safe. You should avoid giving this money directly to a seller to ensure that this money will be returned to you if needed. The deposit is paid at the time of your offer, so be sure you’re ready to pay this up front.
How much is it?
Your earnest money deposit can range from 1-3% of the sale price of the home, but it is a negotiable fee. In competitive markets, some buyers will offer above 3%, which can help demonstrate how serious they are, but it is an added risk. It’s important to remember that this money is a deposit, meaning that if something falls through, you may not get your money back.
Your REALTOR® (hopefully us!) will be able to best guide you on how much you should offer. While you want to prove that your offer is in good faith, you also want to protect yourself from more loss than necessary. Your REALTOR® will be in communication with the agent on the other side to help negotiate the best terms for you.
Depending on the contingencies in your contract, you may be able to get your earnest money back if the seller doesn’t hold up their end of the contract. If you as the buyer are unable to perform on the timeline outlined in your contract, you may lose your earnest deposit. If all goes well, your deposit will be applied towards the total purchase price of the home.
The Wolf Team
There’s more where that came from! Whatever real estate questions you may have, send them our way and we’re happy to answer them. You can reach us at 858-722-6847 or use our contact form.