How Much Earnest Money Should I Offer?

From the seller's perspective, earnest money can provide an indication that the buyer has a financial commitment to the transaction.

From the buyer's perspective, however, earnest money is money that is being placed into the transaction and may be subject to the terms of the contract.

That makes it important to understand exactly what happens to the deposit under different circumstances.

Not necessarily.

A larger deposit can sometimes make an offer more attractive, particularly in a competitive situation. But buyers shouldn't increase the amount simply because they believe "more is always better."

The important question is whether the additional earnest money provides a meaningful benefit inthe negotiation while remaining appropriate for the buyer.

If the purchase closes, earnest money is generally credited toward the buyer's transaction according to the applicable contract and closing procedures.

It isn't simply an additional expense that disappears.

The exact treatment can depend on the contract and applicable state and local practices.

This is one of the most important reasons to understand the contract before deciding how muchearnest money to deposit.

Depending on the circumstances and the contract provisions, the earnest money may be returnedto the buyer, applied toward the transaction, or potentially become subject to a dispute.

Contingencies and deadlines can be particularly important because they may affect a buyer'srights under the contract.

These terms are sometimes confused.

Earnest money is generally a deposit connected to the purchase contract. A down payment is theportion of the purchase price the buyer contributes toward the purchase rather than financing.

Earnest money may ultimately be credited toward the buyer's transaction, but it is not simply another name for the down payment.

When deciding how much earnest money to offer, consider:

• The purchase price
• Local market practices
• The competitiveness of the property
• The seller's expectations
• Your available funds
• The contract provisions
• Applicable deadlines and contingencies

A licensed professional can help you understand how the proposed amount fits into the overall offer.

Earnest money is only one piece of the offer. The price, contingencies, financing, closing timeline, and other terms all work together.

Before increasing your deposit to make an offer more competitive, make sure you understand what you're agreeing to and how the contract treats that money.