Consider an Earnest Money Deposit to Let Home Sellers Know You Mean Business

Home buying can be a very exciting experience, and there’s no time more exciting than when you sit down with your Real Estate agent to draft up an offer letter on that perfect new home you’ve found. Question is, how are you going to ensure that your offer to buy this great new home is taken seriously? The answer, in most cases, is by providing an earnest money deposit along with your offer.

So, What is An Earnest Money Deposit?

In short, this type of deposit is a sum of money you provide along with your offer to buy a piece of real estate in order to let the seller know that you are making a serious offer. Normally, this money is deposited into an escrow account – where it stays until the purchase transaction closes. At that point, your earnest money deposit is applied toward the purchase of the home.

Why Can’t I Just Send in an Offer Without and Earnest Money Deposit?

In truth, you can. However, the risk you run in doing so is that your offer will be pushed aside or will not be taken seriously by the seller, who will likely move on another offer that has a good faith deposit attached to it. Look at it this way. An offer to buy a home without any “skin” in the game, so to speak, is not worth the paper it’s written on. You could, in theory, go around making offers on any number of homes with little fear of any negative outcome. By putting down a deposit, you are accepting some risk that your deposit may be forfeited in the event that your offer is accepted by the seller and you back out without cause.

What is the Suggested Earnest Money Deposit Amount?

The amount you put down as your earnest money deposit can vary from home to home. Obviously, in a buyer’s market, on a house that is priced very low, your earnest money can be on the “light side,” as opposed to when you’re making an offer in a competitive market on a home that’s just too good for most buyers in your area to pass up. If you really want the home, you’d best put down enough to be sure that the seller takes notice enough to accept your offer. As a rule of thumb, one (1) percent of the offer price for your chosen home is a good place to start.

Is it Possible to Lose My Earnest Money?

Yes, but it is rare for this to happen. In normal situations, you should be able to work in conditions that allow you to exit the offer with your deposit in hand should you find circumstances to be prohibitive to buying the home, it is possible to forfeit this deposit. Normally, conditions that allow you end the transaction and receive back your earnest money involve failure to obtain a clean title to the property, negative items discovered during inspection, and so on.

If you lose your earnest money, it’s likely going to be because you waited until too close to the closing date to back out of the deal. In situations like this, you will almost always lose your deposit.

Bottom line, if you’re serious about buying the home you’ve put your offer in on, be sure to send in an earnest money deposit to let you seller know you mean business.