Buying or selling a home in today’s market can come with some unfamiliar jargon. It’s important that you understand the terms used in order to make the best decisions regarding buying or selling your home.
What is Earnest Money?
Earnest money, sometimes referred to as a “good faith deposit”, is often money the buyer puts forth to increase their chances of getting a property. This will show the seller that you are a serious buyer, while also protecting the seller if for some reason the sale were to fall through.
When a buyer and a seller enter into a purchase agreement, the home is typically taken off the market as the transaction moves forward. If the buyer were to change their mind during the process, it could result in a financial hit for the seller. Depending on the contract, the seller may get to keep the earnest money deposit if the buyer backs out at no fault to the seller.
How is Earnest Money Different From a Down Payment?
A down payment is the money that is required from a lender in order to be approved for a home loan. It is a portion of the final purchase price that you will need to pay up front, and will not be financed. Ernest money, on the other hand, can be a part of the purchase price if outlined in the contract.
How Much Earnest Money Should I Offer?
There are many factors that can play into this. Typically it is suggested that earnest money be 1-3% of the purchase price. If you are involved in a bidding war, or a generally busy market, like we are seeing here in Seattle, you may want to offer more to set yourself apart from the competition.
Is an Earnest Money Deposit required?
No, it is never a required part of the sale. However, it may be necessary depending on the state of the market where you are looking to purchase.
The most important thing you can do when beginning the process of purchasing a home, is finding the right agent or team to work with. Every single contract will be different, having a knowledgeable agent that can guide you through this process will be key to having a successful purchase or sale.