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Earnest Money 101: What, Why and How Much?

By Liz Miller

Real Estate Agent with Coldwell Banker Residential Brokerage SA552583000

April 21, 2021 12:28 PM

You found a Lake Havasu home you love. As a smart home buyer, you made sure you received loan approval before you even started looking at houses. You knew you ran the risk of a multiple-bidder situation. So, you wanted to be prepared. When you submitted your offer, you made sure you included a healthy earnest money deposit. Sellers like to see that. What is an earnest money deposit? Why do you need one? And how much should it be?

Earnest Money 101

What is This & Why Do You Need It?

When you enter escrow on your Lake Havasu house, you need to put down an earnest money deposit. This shows the seller that you mean business. After all, if you are willing to put down some money upfront, then you must be serious about wanting to purchase this property. Since the seller promises to take the property off the market during the escrow process, this money provides them with a little bit of insurance that their risk will pay off. Then, they will not entertain other offers during that time.

How Much Does it Need to Be?

It can be as little as $500 to $1000 or as much as 1% to 5% of the purchase price. Your down payment is separate from the earnest money deposit. However, at closing, your deposit becomes part of your down payment. If you include contingencies (like an appraisal, financing, or inspection) and decide to walk away when one of these contingencies is not met, you receive your earnest money deposit back. However, you might not want to include contingencies when in a super-competitive market like ours. The fewer contingencies, the more attractive the offer. Unfortunately for the buyer, if the sale falls through for any reason without contingencies, the seller keeps the deposit. Talk to your Lake Havasu REALTOR® before deciding whether or not to include contingencies in your offer and which ones they should be if you do include them.

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