Most people who are not involved in real estate day in and day out often get confused with the industry terminology that Realtors routinely use.  It can be a confusing barrage of lingo that frustrates buyers and sellers.  One of these terms is Earnest Money.

What is Earnest Money?  - Earnest money in real estate is "good faith money," or as I like to call it serious money.  This is the money that a buyer usually puts up to show the seller that he/she is serious about buying a house.  This is often necessary in the mind of the seller because buying a house usually takes about 30 days (depending on the situation) from the time the buyer and seller ratify a contract until the time of the closing.  The earnest money from the buyer is put is an escrow account and held by one of the involved real estate brokerages until the closing.  If all goes according to plan and the buyer buys the house from the seller, then the earnest money is credited to the buyer at closing.  But, in the event that the buyer backs out of the contract, without proper cause within the contract, the earnest money goes to the seller and the seller must then put the house/property back on the market in hopes of finding another buyer.

How Much Earnest Money? - It is important to note that in South Carolina there is no law requiring earnest money nor is there a law determining how much money should be put in escrow for any given price range.  But, most sellers will not consider an offer without the earnest money being part of the offer.  Why?  Because the seller is taking a risk.  You see once the seller accepts an offer on their home, the home is taken off of the "active" listings on the market. The seller usually secures a new place to live and begins the process of moving his/her household goods into another home or storage. The earnest money ensures that if the buyer backs out (apart from what is allowed in the contract) the seller is compensated for the risk of any potential buyers that were lost as well as their time and trouble involved.

So how much is required?  I know many places around the country have an unwritten rule of 3%-5%.  The only time you will see that around Charleston is with some new construction builders and with some bank owned properties.  In the Charleston SC market, anything under 125K usually calls for an earnest money deposit between $500-$1000 (unless otherwise specified from the seller).  Anything from 125K-250K usually calls for an earnest money deposit of $1000-$1500.  Anything from 250K-500K usually calls for earnest money between the amounts of $1500 and $2500.  Anything above that is usually specified by the seller.  Just like anything else in real estate, earnest money is usually negotiable.

The key thing to remember about earnest money is that is should be used to strenghthen  the offer of the buyer.  A solid offer, a preapproval letter, and a reasonable sum of earnest money can go a long way in convincing the seller to accept the offer of a buyer.