Let's Talk More about Earnest Money...
DETERMINING HOW MUCH EARNEST MONEY TO PUT DOWN when making an initial offer. (Very Important)
The amount of Earnest Money you include with your offer is important because it can create advantages or disadvantages in setting the stage for successful negotiations.
If you were working with the Seller's Agent, they would likely try and get you to put down a very large sum of money. Then, if you were to default on the contract, the Seller could cancel the contract, keep your Earnest Money, and leave you without a home and less money to make an offer on another property.
What happens more often is that the Buyer feels forced to go through with the purchase, even though it may no longer be in their best interest, because they don't want to lose all that money.
There ARE times to use a substantial Earnest Money Deposit, but a typical fair amount for an initial offer is between .5 - 1% of the price of the home. (I know you wanted to know...)
Depending on the situation, a smaller amount may even be appropriate. As agents on YOUR side, we can help you determine whether or not it could be to your benefit to offer a larger or smaller amount in your initial offer.
In order to protect you and your earnest money, we will craft an offer that has favorable terms for the Buyer. You can be assured that as Exclusive Buyers Agents, we will do everything possible to protect you and your money.
A future article will contain information on common contract contingencies and how they can be used to protect you in the real estate transaction.
Homebuyer Representation, Inc. is a Real Estate Brokerage that services Salt Lake City, Utah and surrounding areas. Agents are Exclusive Buyer Agents (EBAs) and represent BUYERS ONLY. For Free Reports or a Free Consultation, contact Homebuyer Representation at (801) 969-8989 or click the highlighted links in this paragraph.
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Ben, it is always a guessing game, isn't it ?
In Michigan we have to have both parties sign the Release of Earnest Money Deposits if the buyer wants to back out prior to contingencies being removed. Sometimes sellers can drag their heels on signing the Release form.
Nice post...way to think like a real estate pro. Best of luck to you in your endeavors
Great post, Benjamin. In my market, the norm for an earnest money deposit is more in the 1-2% range. One of the funny (or perhaps not so funny) provisions in our local form listing agreement provides that in the event the buyer defaults, the seller and the listing broker split the deposit!