In All Earnestness
The Earnest Money Deposit:
How It Helps Buy a Home
D
epositing earnest money is an important part of
the home-buying process. It tells the real estate sell-
er you're in earnest as a buyer, and it helps fund your down
payment. The earnest money check is typically cashed and
held in a title company trust account, or in the broker's escrow
account. You get a receipt from your brokerage when you hand
in the earnest money.
Without the requirement of earnest money,
a real estate buyer could make offers on
many homes, essentially taking them off
the market until they decided which one
they liked best. Sellers rarely accept offers
without the buyers putting down earnest
money to show that they are serious and
are making the offer in good faith.
Assuming that all goes well and the buyer's
good-faith offer is accepted by the seller, the
earnest money funds go toward the down
payment and closing costs. In effect, earnest
money is just paying more of the down pay-
ment and closing costs upfront. In many cir-
cumstances, buyers can get most of the ear-
nest money back if they discover something
they don't like about the home - but there is
always a risk that they might not.
Related Articles
6 Times You Really Can Get Your Earnest
Money Back
How much should you put down
in the earnest money deposit?
The amount you'll deposit as earnest mon-
ey will depend on factors such as policies
and limitations, the current market, what
your real estate agent recommends, and
what the seller requires. On average, how-
ever, you can expect to hand over 1% to 2%
of the total home purchase price.
In some real estate markets, you may end
up putting down more or less than the
average amount. In a market where homes
aren't selling quickly, the listing agent may
note that the seller requires only 1% or
less for the earnest money deposit. In mar-
kets where demand is high, the seller may
ask for a higher deposit, perhaps as much
as 2% to 3%. Your real estate agent may
recommend that you are more likely to win
a bid if you give the seller a large deposit.
In fact, the seller may be willing to nego-
