Earnest Money is an advance deposit a buyer submits with their offer to purchase a property. It says " Pick me! I am earnest, I am acting in good faith to make a legitimate offer on your property." While 1% of the purchase price is often the suggested amount of earnest money to include with an offer, a buyer can choose to go higher or lower depending on a number of things. Just remember that an offer submitted with a higher amount may be given more consideration than one with a lower amount.
Owners need earnest money because when they accept an offer, they will be temporarily - hopefully permanently - taking their property off the market. By agreeing to the terms in a buyer's contract, they are essentially saying "No" to all other real or potential buyers. They need to know that this risk is worth it, that making their home unavailable to all others will likely result in a positive outcome for them. If the offer is accepted and the deal goes through, then the earnest money is applied towards the agreed upon purchase price at closing.
However, offering earnest money is not without risk. There are situations that can result in a buyer losing their earnest money deposit.
As such, nearly all written real estate contracts will outline what can be done with earnest money. These will include provisions that protect the buyer, detailing under which circumstances a contract may be voided and earnest money given back to the buyer. Contracts will also have provisions that protect the seller and under which circumstances they would be allowed to keep the earnest money. Generally, "I changed my mind " is not one of the conditions for getting your earnest money back.
The bottom line is that buying and selling real estate brings with it inherent financial risks. An earnest money deposit helps to ensure that both parties, buyers and sellers, are acting in good faith and remain motivated to honor their prospective duties. After all, real estate is the biggest monetary investment most people make in their lives, so a little assurance - in the form of earnest money - is a small concession if it keeps everyone on the same page and moving forward.
*This information is intended only to provide further clarification of real estate issues in Laramie, Wyoming. I am not an attorney. Any consumer with questions about the real estate process should always consult an attorney of their own.