Earnest Money – what is it and why is it important?
How Much Should You Put Down in the Earnest Money Deposit?
The amount you’ll pay for the earnest money deposit will depend on a few factors, such as policies and limitations in your state, the current real estate market, and what the seller requires. On average, however, you can expect to hand over 1-2% of the total purchase price as earnest money.
When Do You Pay the Earnest Money, and Who Holds It?
In most cases, after your offer is accepted and you sign the purchase agreement, you give your earnest money deposit to the title company. In some states, the real estate broker holds the deposit.
Always check the credentials of the firm or broker taking the deposit and verify that the funds will be held in escrow. Never give the earnest money to the seller; it could be difficult or impossible to get it back if something goes wrong.
After turning over the deposit, the funds are held in an escrow account until the home sale is in the final stages. Once everything is ready, the funds are released from escrow and applied to your down payment.
If the deal falls through, a small cancellation fee is usually taken out of the deposit, but the remainder remains in escrow. Whoever holds the deposit determines whether you should get the money back under the terms of the purchase agreement. Make sure that the purchase agreement covers how a refund is handled.