Today I want to talk to you about another provision in the contract, and that would be the earnest money. What is the purpose, how much should it be, and where does it go? Well, the purpose of the earnest money is to do just that, to show that you’re earnest about buying the property and that you’re serious about it.
So how much should it be? In our market it’s negotiable between the buyer and the seller, but we’re seeing earnest money around 1% of the sale’s price. So anywhere from $500 up to $5,000 in earnest money.
Where does it go? It goes towards your closing costs. So once you get to the closing table, your earnest money is credited back to you and goes towards the cost that you would pay for the house at closing.
Now can you lose your earnest money? Yes you can. There are several contingencies in the contract, there’s the option period and the finance period. During those contingencies you would not loose your earnest money, but if you go past all of those contingencies and then decided you don’t want the house, then your earnest money is at risk. You might also be in default on the contract. So it’s very important that when you go into a real estate contact that you are serious about it, and that’s the purpose of earnest money.