All About Earnest Money

Earnest Money. You may have heard the term before, but perhaps you aren't sure what it actually means. Sometimes it is referred to as simply earnest, or as an earnest payment. Today we are going to tell you everything you need to know about earnest money. Earnest money is essentially a deposit made by a potential home buyer to show interest in the property and to impress the seller. It is meant to show good faith in a real estate transaction and to show the seller that the potential buyer is "earnestly" interested in purchasing the property. Earnest money is not a down payment, and should not be confused as such. It is money paid in addition to a down payment, or a fraction of your down payment is a good way to look at it.

How much earnest money is considered proper? Well, for starters, it should be much less than your entire down payment. If you go through with your home purchase, your earnest money will then be applied towards your down payment on your property. Think of it as another form of collateral, used to assure the buyer that you are really interested in their property and that you want for them to choose you as their buyer. The earnest payment will be presented at the time of signing your offer. The earnest payment will be held in escrow until the closing of the property, so it is neither person's "property" until closing.

Earnest money amounts vary greatly from market to market. Your earnest money deposit should be negotiated between yourself and the seller. In the Washington market, the average earnest money deposit is between 1-5%, or $10,000-$20,000 on a $500,000 purchase. There are some markets where as little as $500 or $1000 is acceptable earnest money. There really is no set amount, but you want to make sure that it is enough for you to be taken seriously as a potential buyer. Remember also that if you back out the deal at the very last minute, the earnest money could go to the seller and not back to you.There are different laws and processes regarding this. If the cancellation of the deal is the buyer's fault, then the money will usually go back to the seller. If, though, the cancellation is the seller's fault, then the money is returned to the buyer. Usually the buyer and seller will come up with an agreement so that they can disperse the earnest money fairly if there is a problem. There is a kind of tightrope that you have to walk, a fine line between putting up not enough cash and putting up so much cash that it becomes an financial risk.

Earnest money may be sort of a confusing concept, but if you are dealing with a trusted and experienced real estate agent such as Hamid Ali, you are in good hands, and you will have no problem settling on just the right amount. Your real estate agent can definitely help you come up with a good and acceptable earnest payment.