Earnest money is one of the many terms you will encounter in a real estate transaction – and an important one too! So what is it exactly? Austin has the answer in this Week’s Theory Thursday!
So when you’ve found that perfect home and are ready to make an offer, there’s a surefire way to let the seller know you mean business — make sure you include an Earnest Money deposit.
Earnest Money is a deposit that a buyer pays to show the seller they’re serious about their offer. It is a simply a sum of money showing the buyer’s “good faith” in a transaction. Both the buyer and the seller want to make sure the deal goes through, and an Earnest Money deposit helps give the deal solid footing.
Is Earnest Money a legal requirement to buy a home?
Technically No… but it’s a pretty good idea if a buyer wants to make their offer competitive. From a seller’s point of view, a buyer will think twice about backing out if they’ve got money at stake. That kind of built-in financial security makes sellers feel more at ease when accepting an offer. I have personally worked with quite a few buyers, and I have included an earnest money deposit with every offer that I’ve written.
How much Earnest Money do you need?
Earnest Money amounts vary by geography and can range from $500 to 5% of the purchase price of the home. It really depends on the type of home you’re purchasing. I would suggest speaking with your Real Estate Agent to decide how much Earnest Money you’d like to include with your offer.
Is Earnest Money ever nonrefundable?
Real estate contracts include timelines and responsibilities for both buyers and sellers. Buyers risk losing their Earnest Money deposit when they don’t comply with the contract’s terms, and sellers lose valuable time on the market.
Real Estate contracts can terminate for many reasons, such as if the buyer can’t get financing, OR if the buyer decides not to follow through with the purchase after an unsatisfactory inspection. In addition, depending on the market, a seller may negotiate that the deposit is nonrefundable after a certain number of days. In some housing markets where sellers receive multiple offers on their home, you may want to agree to a nonrefundable deposit to make your offer more attractive. Again, I would speak with your Real Estate Agent to see if this would make sense for you.
