A Complete Guide to Real Estate Earnest Money

When you’re trying to get your house sold, it’s important to be discerning. Specifically, it’s helpful to identify any buyers who are less than serious, and who might ultimately just waste your time. Naturally, you’ll want to humor frivolous buyers as little as possible.

One resource you have for achieving this is what’s known as real estate earnest money. Earnest money can be an important element in the home selling process, and it’s important that buyers and sellers alike understand what this fee actually is and why it’s in place.

We’ll get into all of that here. In the meantime, allow us to recommend the SOLD.com home seller’s report. Claim your copy today and you’ll get individualized tips for selling your home. There’s no better way of moving your house from the for sale column to the sold column.

What is Earnest Money?

But back to earnest money, which is also called an escrow deposit or good faith money. Basically, this is a small sum of money that a potential buyer pays to the seller to show them that they are serious; that they are honestly looking to buy the home, rather than waste anyone’s time.

When the buyer pays this sum, it gives them a little extra time to do things like schedule an appraiser, get a home inspection, and look for a title company. Even if these tasks take a few days or a couple of weeks, they’ve made that deposit to the buyers to show that they’re not messing around.

Generally, the earnest money is paid with the signed contract, though in some cases it can be provided with the initial offer, a further sign of seriousness.

Once this sum is paid, it’s usually held in an escrow account. At closing, it’s credited toward the buyer’s down payment.

In other words, consideration of earnest money is important during the various steps of selling a home.

Why Earnest Money is Important

When the buyer decides to purchase the home, both the buyer and the seller enter into a contract together. This doesn’t make the buyer obligated to buy the home, especially not if the appraisal or the home inspection reveals problems that the seller is unwilling to address. However, the contract does compel the seller to remove the house from the market while the appraisal and inspection happen.

But the seller needs some indication that the buyer isn’t going anywhere… that they are truly committed to purchasing the house, assuming no big issues with the appraisal and inspection. And that’s really what the earnest money is all about.

Is Earnest Money Ever Refunded?

It’s also important to note some scenarios in which the earnest money might be refunded.

Generally, the buyer will be refunded their earnest money if something that’s specified in the contract goes wrong… for example, if the property appraises at a much lower value than what’s specified in the contract.

Meanwhile, if the buyer decides not to go through with the purchase for reasons that are not outlined in the contract, that’s a different matter, and it may mean that the seller gets to keep that earnest money.

How Much is Earnest Money?

Of course, it’s important to consider how much earnest money is actually paid. This is something that the buyer and seller can negotiate, though it’s typically within a fairly narrow range of one to two percent of the total sale price. Buyers may be expected to pay a little bit more if it’s a hot market and if other parties have expressed interest in the home.

Sellers definitely have some leeway to ask for more earnest money if they feel it’s justified, but there’s no use scaring away a potential buyer with an overly onerous demand. Remember that earnest money is meant to be a safeguard, not a profit center.

Get Additional Tips for Selling Your Home

If you’re curious to receive further guidance about the steps to selling a home, we commend you yet again to get your SOLD.com seller’s report. Grab your copy of the report today and take the first steps toward making a truly informed listing and achieving all your real estate goals!