Real Estate Q&A: What is Earnest Money?Real Estate Q&A

 

The seller asks the buyer for Earnest Money to demonstrate a serious intent to purchase the property.  Earnest Money is typically 1% of the purchase price, however in homes priced over $500,000 Earnest Money could be as much as 2-3% of the purchase price.

Earnest Money compensates the seller if the buyer is in default of the contract, or if the buyer walks away from the purchase of the property.

As long as the buyer acts in good faith and works within the deadlines of the contract, the earnest money is protected and can be returned to the buyer if the deal cannot move forward.  The Earnest Money will also be treated as a credit to the buyers’ down payment or closing costs upon purchase of the property.

The Contract to Buy and Sell Real Estate (in Colorado) specifies how the Earnest Money will be treated as part of the Real Estate transaction.


If you have Real Estate Questions, The Foerster Team has the Answers.  Please call us at (720) 530-5554, email us at Donna@TheFoersterTeam.com or leave your question in the comments below.  Who knows? Your question might be the topic of a future blog post!


 

Follow Me on Twitter Follow Me on Facebook Lets get Linkedin

rich and donna

Donna Foerster

The Foerster Team

Rocky Mountain Real Estate Advisors

www.TheFoersterTeam.com

720-530-5554 (cell)

Equal Housing Logo

 Realtor Logo

 
Post is included in group: Advice for Buyers
Post is included in group: Never Answer The Same Question Twice
Post is included in group: ActiveRain Contests
Post is included in group: Real Estate Questions & Answers

47 Comments on Real Estate Q&A: What is Earnest Money?

20 Most Recent Comments Displayed Show All

MAY
22
2012
553,088 Points 20 Featured Posts Outside Blog Called Shot Master

Rob~ It's the Buyer's Agent job to educate their client.  It's not hard and it will certainly make the transaction that much smoother!

Bill~ I'm finding that out and it's concerning.

Thanks Lottie!

Another good analogy, Richie!

Thank you Rebecca.  I did my best to keep it simple and thorough.
10:33am • #28
553,088 Points 20 Featured Posts Outside Blog Called Shot Master

Cynthia~ Many buyers have no clue what happens with the Earnest Money Deposit.

Eveyln~ I liked John's analogy also.

Sean~ The buyer MUST act in Good Faith in order for the Earnest Money to be returnable.
10:38am • #29
879,393 Points 48 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

A common myth about earnest money in Texas is that it is required. Not true. Most sellers will not agree to an offer without it, but... it is up to them.
12:32pm • #30
196,487 Points Outside Blog

Concise and very good comments about the EMD.
1:11pm • #31
553,088 Points 20 Featured Posts Outside Blog Called Shot Master

Joni~ The Earnest Money Deposit can be a sore spot with a seller.  If you really want to buy the house, you need to be flexible.

Thank you Kimo! Let's keep the public educated!
1:50pm • #32
631,063 Points 7 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Great explanation! Sometimes what we consider simple is complicated to a buyer and seller
4:15pm • #33
388,883 Points 21 Featured Posts Outside Blog Called Shot Master

Donna, very clearly stated....we don't use it much here though.
4:49pm • #34
553,088 Points 20 Featured Posts Outside Blog Called Shot Master

Thank you Hannah! I remember being confused about an appraisal and an inspection.  (Hmmm, maybe I should write a post about that too!)

Ellen~ Once again, proof that Real Estate is local and you need to have a professional looking out for your best interests!
4:54pm • #35
625,934 Points 1 Featured Post Outside Blog

Looks like you explained it well Donna and it works for me. Good luck and thanks for the great info.
6:49pm • #36
1,024,215 Points 15 Featured Posts Localism Sponsor Outside Blog Called Shot Master

Great post on a very basic topic.  But something people are always asking about.  It is common to us, but we forget to many it is not.
8:06pm • #37
518,831 Points 7 Featured Posts Outside Blog Called Shot Master

Great job, Donna, in explaining the Earnest Money!  That is a question that comes up often for me as well!
8:07pm • #38
170,231 Points 2 Featured Posts Outside Blog Attended Rain Camp

I've done very few deals in NYC with an earnest money below 10% of the purchase price.  We recently agreed to it on a deal in Brooklyn because the purchaser was willing to deposit 5% ($75,000) before selling their existing home, after which the seller was looking at an LTV of 50.  

I've done deals in other states as well and I've found that high deposits ensure deals get done after offers are made.  I'm all for it.  Buyers are more inclined to be reasonable, and stick to the deal they initially thought was good enough, when they have 10% in escrow (which is often more than $100k on our deals).
11:08pm • #39
MAY
23
2012
499,366 Points 13 Featured Posts Outside Blog Called Shot Master

Hi Donna, excellent post and explanation.  Too often to us in the trade we assume the genral public is aware of how escrow works.
2:58am • #40
629,093 Points 1 Featured Post Outside Blog

Good morning Donna, pretty straight forward explanation of the rules and intent around earnest money. Thanks for posting this very useful information. 
8:03am • #41
104,380 Points

Great post!!  My I repost on my personal blog??
12:20pm • #42
553,088 Points 20 Featured Posts Outside Blog Called Shot Master

Hello Joyce~ I'm having fun posting some FAQs.  I feel strongly that it's our responsiblity to educate consumers.

Gene~ Particularly with First Time Home Buyers!

DeeDee~ Seems to be a common question for most of us.

Mike~ Once again I'm surprised by how "local" real estate truly is.  10% is a lot for our neck of the woods!

Bob~ We also need to remind ourselves and consumers that the "rules" vary by state and sometimes even within the state!

Thank you Adrian.  I enjoyed writing it too!

Of course Steph!  Thank you!
9:02pm • #43
MAY
24
2012
556,652 Points 31 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Hi Donna,

Good post.

Earnest money is important. On my listings, I will encourage the seller to counter a low earnest money, even if everything else is OK.

Phil
5:35am • #44
553,088 Points 20 Featured Posts Outside Blog Called Shot Master

Hello Phil~ Good strategy.
10:00am • #45
JUN
04

THIS WAS AN AWESOME POST!! not just for Buyers and Sellers but for new Realtors in the business.

keep 'em coming

 
Tonya Kinchelow
2:38pm • #46
553,088 Points 20 Featured Posts Outside Blog Called Shot Master

Hi Tonya~ So glad you found it helpful!
2:57pm • #47

20 Most Recent Comments Displayed Show All

Login or register to leave a comment
 

Find CO real estate agents and Parker real estate on ActiveRain.