Real Estate Q&A: What is Earnest Money?

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Real Estate Agent with Cherry Creek Properties, LLC

Real Estate Q&A: What is Earnest Money?Real Estate Q&A

 

The seller asks the buyer for Earnest Money to demonstrate a serious intent to purchase the property.  Earnest Money is typically 1% of the purchase price, however in homes priced over $500,000 Earnest Money could be as much as 2-3% of the purchase price.

Earnest Money compensates the seller if the buyer is in default of the contract, or if the buyer walks away from the purchase of the property.

As long as the buyer acts in good faith and works within the deadlines of the contract, the earnest money is protected and can be returned to the buyer if the deal cannot move forward.  The Earnest Money will also be treated as a credit to the buyers’ down payment or closing costs upon purchase of the property.

The Contract to Buy and Sell Real Estate (in Colorado) specifies how the Earnest Money will be treated as part of the Real Estate transaction.


If you have Real Estate Questions, The Foerster Team has the Answers.  Please call us at (720) 530-5554, email us at Donna@TheFoersterTeam.com or leave your question in the comments below.  Who knows? Your question might be the topic of a future blog post!


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Donna Foerster

The Foerster Team

Cherry Creek Properties, LLC

www.TheFoersterTeam.com

720-530-5554 (cell)

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Re-Blogged 5 times:

Re-Blogged By Re-Blogged At
  1. Richie Alan Naggar Author PEARLS SERIES of books 05/22/2012 07:55 AM
  2. Gene perez 05/22/2012 09:34 AM
  3. Rebecca Gaujot, Realtor® 05/22/2012 03:02 PM
  4. Stephanie Arnett 05/23/2012 12:22 PM
  5. Gene Riemenschneider 05/24/2012 10:19 AM
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Show All Comments
Rainmaker
861,688
Donna Foerster
Cherry Creek Properties, LLC - Parker, CO
Metro Denver Real Estate Agent

Rob~ It's the Buyer's Agent job to educate their client.  It's not hard and it will certainly make the transaction that much smoother!

Bill~ I'm finding that out and it's concerning.

Thanks Lottie!

Another good analogy, Richie!

Thank you Rebecca.  I did my best to keep it simple and thorough.

May 22, 2012 10:33 AM #28
Rainmaker
861,688
Donna Foerster
Cherry Creek Properties, LLC - Parker, CO
Metro Denver Real Estate Agent

Cynthia~ Many buyers have no clue what happens with the Earnest Money Deposit.

Eveyln~ I liked John's analogy also.

Sean~ The buyer MUST act in Good Faith in order for the Earnest Money to be returnable.

May 22, 2012 10:38 AM #29
Ambassador
1,090,122
Joni Staples
Berkshire Hathaway Home Services - Anderson Properties - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

A common myth about earnest money in Texas is that it is required. Not true. Most sellers will not agree to an offer without it, but... it is up to them.

May 22, 2012 12:32 PM #30
Rainer
275,727
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Kimo's Lifestyle Solutions

Concise and very good comments about the EMD.

May 22, 2012 01:11 PM #31
Rainmaker
861,688
Donna Foerster
Cherry Creek Properties, LLC - Parker, CO
Metro Denver Real Estate Agent

Joni~ The Earnest Money Deposit can be a sore spot with a seller.  If you really want to buy the house, you need to be flexible.

Thank you Kimo! Let's keep the public educated!

May 22, 2012 01:50 PM #32
Ambassador
766,307
Hannah Williams
Re/Max Eastern inc. - Philadelphia, PA
Expertise in NE Philadelphia & Bucks County

Great explanation! Sometimes what we consider simple is complicated to a buyer and seller

May 22, 2012 04:15 PM #33
Rainmaker
404,880
Ellen Caruso
Daniel Gale Sotheby's International Realty - Glen Head, NY

Donna, very clearly stated....we don't use it much here though.

May 22, 2012 04:49 PM #34
Rainmaker
861,688
Donna Foerster
Cherry Creek Properties, LLC - Parker, CO
Metro Denver Real Estate Agent

Thank you Hannah! I remember being confused about an appraisal and an inspection.  (Hmmm, maybe I should write a post about that too!)

Ellen~ Once again, proof that Real Estate is local and you need to have a professional looking out for your best interests!

May 22, 2012 04:54 PM #35
Rainmaker
881,788
Joyce Kelley
Charles Stallions Real Estate Services Inc - Gulf Breeze, FL
Buyers Agent 800-309-3414 Pace and Gulf Breeze,Fl.

Looks like you explained it well Donna and it works for me. Good luck and thanks for the great info.

May 22, 2012 06:49 PM #36
Rainmaker
1,241,626
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Great post on a very basic topic.  But something people are always asking about.  It is common to us, but we forget to many it is not.

May 22, 2012 08:06 PM #37
Rainmaker
577,703
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

Great job, Donna, in explaining the Earnest Money!  That is a question that comes up often for me as well!

May 22, 2012 08:07 PM #38
Rainer
207,815
Akerly Real Estate Team Manhattan & Brooklyn Real Estate
Akerly Real Estate Team - Brooklyn, NY

I've done very few deals in NYC with an earnest money below 10% of the purchase price.  We recently agreed to it on a deal in Brooklyn because the purchaser was willing to deposit 5% ($75,000) before selling their existing home, after which the seller was looking at an LTV of 50.  

I've done deals in other states as well and I've found that high deposits ensure deals get done after offers are made.  I'm all for it.  Buyers are more inclined to be reasonable, and stick to the deal they initially thought was good enough, when they have 10% in escrow (which is often more than $100k on our deals).

May 22, 2012 11:08 PM #39
Rainmaker
629,904
Stephanie/Bob The Ruiz/Miller Team
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Donna, excellent post and explanation.  Too often to us in the trade we assume the genral public is aware of how escrow works.

May 23, 2012 02:58 AM #40
Rainmaker
941,180
Adrian Willanger
206 909-7536 TheHomeFunnel.com - Seattle, WA
Profit from my two decades of experience

Good morning Donna, pretty straight forward explanation of the rules and intent around earnest money. Thanks for posting this very useful information. 

May 23, 2012 08:03 AM #41
Rainmaker
160,091
Stephanie Arnett
Coldwell Banker SRE ~ Starkville, MS - Starkville, MS
SRS, IMSD, Broker Associate, REALTOR

Great post!!  My I repost on my personal blog??

May 23, 2012 12:20 PM #42
Rainmaker
861,688
Donna Foerster
Cherry Creek Properties, LLC - Parker, CO
Metro Denver Real Estate Agent

Hello Joyce~ I'm having fun posting some FAQs.  I feel strongly that it's our responsiblity to educate consumers.

Gene~ Particularly with First Time Home Buyers!

DeeDee~ Seems to be a common question for most of us.

Mike~ Once again I'm surprised by how "local" real estate truly is.  10% is a lot for our neck of the woods!

Bob~ We also need to remind ourselves and consumers that the "rules" vary by state and sometimes even within the state!

Thank you Adrian.  I enjoyed writing it too!

Of course Steph!  Thank you!

May 23, 2012 09:02 PM #43
Rainmaker
572,428
Phil Leng
Keller Williams Eastside Market Center - Kirkland, WA
Phil Leng Team - Residential Real Estate Experts &

Hi Donna,

Good post.

Earnest money is important. On my listings, I will encourage the seller to counter a low earnest money, even if everything else is OK.

Phil

May 24, 2012 05:35 AM #44
Rainmaker
861,688
Donna Foerster
Cherry Creek Properties, LLC - Parker, CO
Metro Denver Real Estate Agent

Hello Phil~ Good strategy.

May 24, 2012 10:00 AM #45
Anonymous
Anonymous
Tonya Kinchelow

THIS WAS AN AWESOME POST!! not just for Buyers and Sellers but for new Realtors in the business.

keep 'em coming

 

June 04, 2012 02:38 PM #46
Rainmaker
861,688
Donna Foerster
Cherry Creek Properties, LLC - Parker, CO
Metro Denver Real Estate Agent

Hi Tonya~ So glad you found it helpful!

June 04, 2012 02:57 PM #47
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Donna Foerster

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