Home buyers might be confused about the role earnest money plays in their real estate transaction. There’s good reason for this, since earnest money isn’t technically required! Customs regarding the amount of earnest money that should be offered – and whether it’s expected at all – vary by area, and state laws also vary regarding its handling.

Earnest money is generally included when making an offer on a home. The purpose of earnest money is to show the seller your sincerity in completing the transaction. When you make a purchase offer, you can stipulate the amount of earnest money you’ll provide in the contract.

The amount of earnest money offered is completely up to you. It can be 1% to 3% of the home purchase price, or it can be as little as $250. In a competitive market, a larger earnest money deposit can help your offer stand out from others.

When you use an Exclusive Buyer Agent to represent you, he or she will usually have you make the earnest money check payable to an escrow account designed for earnest money funds. The exact handling of the earnest money check depends on the laws of your state.

Generally, once the seller agrees to your offer, the earnest money check is held by your EBA until all the contingencies are met, such as the home inspection and satisfactory appraisal. Once all the stipulations are cleared, the earnest money check is deposited into the designated escrow account.

At closing, your earnest money is typically applied to your closing costs, or combined with the rest of your down payment. In some cases, you may opt to have the earnest money returned to you directly. In other words, the earnest money remains yours, so long as you honor the terms of your purchase contract!

The home seller only gets the earnest money if you fail to go through with the home purchase, and your reasons for pulling out are not covered by the contingencies in the purchase contract. In this case, you could be on the hook for more than the earnest money amount, which is why having an Exclusive Buyer Agent on your side is so important!

Your Exclusive Buyer Agent will provide you with specific guidance regarding the appropriate amount of earnest money to offer. Each home buying situation is unique! Your EBA will help you create a purchase offer that appeals to the seller while protecting your best interests.

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