What is Earnest Money and What's a Good Amount to Offer?

By
Real Estate Agent with Donna Homes, PLR 0480809

What is Earnest Money and what's a good amount to offer?  In simple terms, Earnest Money means "Good Faith Money". It means you are offering to put up $X amount to show "Good Faith" that you intend to do everything in your power to move the transaction along to get to the closing table.

No, Earnest Money is not a legal requirement in the Texas Residential Real Estate Contract, however, I've never seen a transaction move forward without it.

As for the amount of Earnest Money to give, there are many opinions on this, and the answers will also be regional within each state. When I worked in Dallas, most contracts saw $1000 for earnest money, even if the price of the house was $300,000. Once you got into the higher prices, amounts like $2500 or $3000 make more sense, but not high amounts.

From working in the Austin market the past few years, it's more like a 1% rule. If the house is $100,000 you give $1000 earnest money. If the house is $450,000, you give $4500 earnest money. The amount is negotiable, so it's really whatever makes both the buyer and sell comfortable.

I had buyers a couple of months ago who were in the middle of a multiple offer situation. The buyers decided to put up $100,000 earnest money to see if it interested the seller, but alas, the seller was a bottom-line number's person and only cared about the sales price and net amount to him. He didn't care if one offer/buyer was "stronger" than the other.

I also had a buyer last year who put up $10,000 earnest money for a $200,000 house, and the listing agent countered it back with only $1000. He said it must have been a typo for my buyers to offer so much. I explained to him, again, why it was at $10,000 but the sellers were uncomfortable with the amount and lowered it... not everyone understands how the earnest money can be used as leverage.

Is earnest money necessary? No. Is it a good negotiating tactic? Yes!

**Are You Packed Yet?**

donna harris Realtor Austin TX blog

Donna Harris, REALTOR®
RE/MAX Austin Skyline
www.DonnaHomes.com

Donna@DonnaHomes.com
austin-texas-homes-for-sale.com

Austin TX Real Estate and the surrounding areas of Lakeway, Bee Cave, West Lake Hills, CedarPark, Round Rock, Spicewood, Circle-C, Steiner Ranch, and everywhere in between... Hill Country Austin TX Real Estate and beyond. Whether you're buying or selling an Austin home, I'll be with you every step of the way. 

For real time Austin TX listings,click here.

 

** Multi-Million Dollar Producer Year after Year **
** Platinum Top 50 Finalist 2011 out of almost 9000 agents in Austin TX**
** Five-Star Professional 2011 & 2012 **
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Copyright© 2012 By Donna Harris, All Rights Reserved. You may re-blog with links back to this post.
* What is Earnest Money and What's a Good Amount to Offer?
* was first published on donnahomesblog.com.

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Rainmaker
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Team Honeycutt
Allen Tate - Concord, NC

It is interesting to see the difference in the earnest money amount depending on the area. In Concord, N. C. it is perfectly acceptable to get $1,000 on a lot of the contracts.  Within a 20 mile radius sometimes there is an at least 5%.

Betty

Jun 08, 2012 10:31 AM #1
Rainmaker
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Tim Bradley
Contour Investment Properties - Jackson Hole, WY
Commercial Real Estate Expert in Jackson Hole, WY

It varies wildly here. I see earnest money ranging from $100,000 to $5,000 for the same $1,000,000 house. We have a lot of cash buyers, and the larger earnest money deposit tend to come with the non-financed purchases.

Jun 08, 2012 11:15 AM #2
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Brenda Mullen
RE/MAX Access - Schertz, TX
Your San Antonio TX Real Estate Agent!!

Hi Donna-I had never heard that earnest money was optional before.  I will have to go and look that up lol :)'.  I though the amount was optional, but for a contract to be valid, some sort of consideration would need to be given.  If it is optional, I am not sure too many sellers would accept a contract without it :)!

Great post on the amount of earnest money.  We use the 1% rule here for the most part too.  

Jun 08, 2012 11:50 AM #3
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Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

I've had sellers request MORE than the 1% rule on high end homes Donna as they are so fearful the deal will crater. Great post...

Jun 08, 2012 01:06 PM #4
Rainmaker
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Donna Harris
Donna Homes, PLR - Austin, TX
Realtor, CDPE & ASP - Hill Country Lakeway Austin

Betty, They also range based on agent experience.

Tim, Very true here too.

Brenda, Yes, it's optional. You need "consideration" and the consideration could be that the buyers want to buy and the sellers agreed to their terms.

Gary, But if those same sellers will read my series I'm writing about ways out of the contract, they'll see the amount doesn't matter if the seller still won't ever see it in their hands.

Jun 08, 2012 02:10 PM #5
Rainmaker
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Sussie Sutton
UTR Texas Realtors - Pearland, TX
UTR TEXAS Realtors - Rep for buyers and sellers.

What a great post! Lately there have been a great many post that are great for home buyers to see. I hope this one gets on those that need it.

suggested!

Jun 08, 2012 05:39 PM #6
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Loreena Yeo
3:16 team REALTY ~ Locally-owned Frisco TX Real Estate Co. - Frisco, TX
RealtorĀ® | Frisco TX Community Ambassador

I've always looked at the Earnest Money being the compensation in case the contract defaults. I'd take $10K anytime!

Jun 08, 2012 05:40 PM #7
Rainer
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Paul Gapski
Berkshire Hathaway / Prudential Ca Realty - El Cajon, CA
619-504-8999,#1 Resource SD Relo

Yes mostly i use the 1% rule but if its a really nice house i often suggest to triple it up.

Jul 14, 2012 06:21 PM #8
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Rainmaker
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Donna Harris

Realtor, CDPE & ASP - Hill Country Lakeway Austin
Are you Packed for Austin? I can help!!
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