How much earnest money should I put down?
The amount of earnest money varies from one purchase to the next. There is no set formula or amount. The earnest money works as a deposit of buyer’s interest to the seller. A serious buyer is more likely to put down a sizeable deposit.
Sometimes sellers request that buyers put down more earnest money than offered. After all they are taking a risk removing the home from the market. Asking the buyer to take a greater risk in the process seems only fair to the seller. Your local real estate consultant can advise you regarding an acceptable amount to help insure the offer is accepted by the seller.
As a general rule a dollar amount of 1% would be a good indication to the seller that buyer is ready to make the purchase. The more serious the buyer the more likely the seller will be to negotiate and together come up with an agreement that meets both parties needs. Let’s be reasonable if a $500 deposit of earnest money is offered on a $500,000 house it doesn’t scream ready, willing and able buyer.
Yet a $500 deposit on a $100,000 house may be acceptable. Be sure to talk openly about your funds availability during the writing of the purchase offer with your local real estate consultant. Most purchases require a down payment of 3% or more of the sales price so 1% earnest is not really all that unrealistic.
One last note, the earnest money deposited at the time the contract becomes accepted is applied to the buyer’s down payment and other closing costs in the final closing.There are some risks associated with the earnest money. Be sure to discuss risks with your local real estate consultant. Most purchase contracts do close with the earnest money going towards that closing.