When it comes time to make an offer on a single-family home, you can show the seller of the home that you are earnest about the deal using earnest money. Sellers are not obligated to sell their home to just anyone, and some sellers consider more than just the offer price when making a selling decision. Earnest money can be thought of a deposit on the home, so read on to find out more before you declare your intentions.
How Earnest Money Plays a Part
The money you pledge toward a home is not wasted money and can be refunded to you in some circumstances. It's common in almost all areas of the country to add cash (really, a check) to the deal at the time you make the offer. This cash payment shows you are serious about your offer, and the money will eventually go toward paying the closing costs or to the down payment. It's important to plan ahead and be ready with your earnest money deposit. That brings up the question of how much earnest money you will pay.
Earnest Money Amounts
While the amount can vary slightly from one area of the country to another, the amount you include is usually based on a percentage of the offer price of the home. Be sure to discuss this matter with your real estate agent and expect anywhere from about 1% to about 3%. For example, if you are offering $350,000 for a home and it's traditional in your area to provide 2% earnest money, you would need to write a check for $7,000. As you can see, earnest money deposits can be quite expensive.
What Happens to the Earnest Money?
Never provide the earnest money directly to the seller but give it to your real estate agent instead. They will provide you with a receipt, and the sales contract will reflect the payment for the seller to see. Earnest money is always deposited into a bank escrow account held by either the real estate brokerage or the title company used for the title search and insurance.
Can You Get My Earnest Money Back?
Yes and no. If the sales contract falls through for certain reasons, you will be refunded your earnest money. If you just change your mind about the home or find a home you like better, getting your earnest money back might be more of a challenge — if not impossible. Some common reasons for refunds on earnest money include the buyer being unable to get financing and the seller not complying with home repairs or canceling the deal.
To find out how much earnest money you will need, speak to your real estate agent right away.