What is Earnest Money and what's a good amount to offer? In simple terms, Earnest Money means "Good Faith Money". It means you are offering to put up $X amount to show "Good Faith" that you intend to do everything in your power to move the transaction along to get to the closing table.
No, Earnest Money is not a legal requirement in the Texas Residential Real Estate Contract, however, I've never seen a transaction move forward without it.
As for the amount of Earnest Money to give, there are many opinions on this, and the answers will also be regional within each state. When I worked in Dallas, most contracts saw $1000 for earnest money, even if the price of the house was $300,000. Once you got into the higher prices, amounts like $2500 or $3000 make more sense, but not high amounts.
From working in the Austin market the past few years, it's more like a 1% rule. If the house is $100,000 you give $1000 earnest money. If the house is $450,000, you give $4500 earnest money. The amount is negotiable, so it's really whatever makes both the buyer and sell comfortable.
I had buyers a couple of months ago who were in the middle of a multiple offer situation. The buyers decided to put up $100,000 earnest money to see if it interested the seller, but alas, the seller was a bottom-line number's person and only cared about the sales price and net amount to him. He didn't care if one offer/buyer was "stronger" than the other.
I also had a buyer last year who put up $10,000 earnest money for a $200,000 house, and the listing agent countered it back with only $1000. He said it must have been a typo for my buyers to offer so much. I explained to him, again, why it was at $10,000 but the sellers were uncomfortable with the amount and lowered it... not everyone understands how the earnest money can be used as leverage.
Is earnest money necessary? No. Is it a good negotiating tactic? Yes!
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Copyright© 2012 By Donna Harris, All Rights Reserved. You may re-blog with links back to this post.
* What is Earnest Money and What's a Good Amount to Offer? * was first published on donnahomesblog.com.