Earnest Money Basics

I blogged about earnest money on my website to offer an explanation to inexperienced buyers and sellers as to the purpose and amount of money one should consider or expect.  Please feel free to opine. 

Earnest Money (Good Faith Deposit) - The Basics

        First let me say that real estate practices vary greatly from one state to another and even from one market to another.  Please do not take these suggestions as anything more than what there are and please consult with an experienced local agent when entering into a contract to buy or sell real estate.

        I am often asked about the earnest money deposit when talking with buyers and sellers. How much should I offer?  What is the purpose?  In my market where houses are usually priced between 75k and 250k, I suggest 1% of the purchase price and a minimum of $500.  There are many cases where one might offer more and even a few cases where one might offer less.  What is the purpose?  The earnest money deposit is an integral part of the offer to purchase. It illustrates to a seller the buyer's level of commitment in purchasing the home and in some ways it illustrates the financial ability of the buyer to close.  Furthermore, earnest money provides the seller of a property a level of comfort that the buyer's intent is genuine. Keep in mind that the seller is going to take his home off of the active market and miss other potential buyers to give the contracted buyer the opportunity to purchase. 

        From this point, a continued discussion of earnest money would get complicated and involve discussions on default, due diligence, contingencies, etc. and should be handled on a case by case basis.