The Art of “Earnest Money.”

The Art of “Earnest Money.”

Not only is buying a home exciting but it can be a challenging process, too. When it comes to buying a home, there are so many moving parts – searching for a home, writing up an offer, getting it accepted, and buying a home. All of the fast-moving parts of buying a home are crucial, especially if you want to make the home buying experience to be as seamless as possible. Thankfully, with the help of a good buyers agent – this big and infrequent transaction doesn’t have to be as stressful as one may think.

Even though every single moving part of the home buying process is important; I want to focus in on one of the moving parts of the home buying transactions that sometimes gets overlooked (and or) gets sometimes misunderstood.

The art of “earnest money.” After you find the home of your dreams – you need to submit an offer to the seller. And in the offer, there is something called “earnest money.” One of the first things in the contract that I get asked about is the “earnest money.” So, what is earnest money? And the perfect “textbook definition” of earnest money is “The amount of money (which is a deposit) paid by the buyer to a seller demonstrating the serious nature of the buyer to complete the real estate transaction.”

Once the buyer understands the nature and importance of the “earnest money,” they also want to understand how much earnest money to give and can they lose it? Both are great questions as well as both questions require a deeper discussion.

The question of “how much earnest money should I give” usually comes up first. And my answer is always “the more you can give, the better.” Let me explain – this is where the “art of earnest money” come into play. You want the seller to know you are serious about buying the home, and the more earnest money you offer to deposit into escrow shows the seller just how serious you are about buying the home. Example – let’s assume the seller gets a few full price offers. The down payments and close of escrow are virtually the same, but one of the offers has a much higher earnest money deposit. In most cases the offer with the much higher earnest money deposit stands out, and in most cases the sellers will go with that offer.

The next big question is “can I lose my earnest money?” Here’s the deal – unless you are in default of your contract your earnest money is safe and protected. But rest assure - if you back out of the deal once all contingencies expire, the seller will most likely retain the earnest money. But, should the seller default, escrow will promptly return your earnest money.

As I’ve mentioned – the home buying process is exciting and complicated all at the same time. Bottom line – it is very important you understand all aspects of the home buying process “as well as” you need professional guidance along the way. And when it comes to “earnest money,” just keep in mind there’s nothing to be afraid of, it is very important to understand, and it reassures the sellers you are a serious buyer (which can be the difference between your offer getting accepted or not!)