Steve, there is no norm on Ernest Money Deposit. However, 1 to 3% is sufficient, except if specified in MLS by listing agent.

Cheers,

Reza Khodadad
Real Estate Consultant

Thu Apr 3 2008, 20:23

Most offers to buy a house are accompanied by a check. This check is generally referred to as the "earnest money deposit." The basic reason for the deposit is to impress the seller that the buyer "earnestly" intends to purchase the property.

The amount of the deposit varies from purchase to purchase, depending on a variety of factors. If a property generates a lot of interest, a buyer may make a larger deposit to convince the seller that their offer is stronger than the others. During "hot" markets, deposits are generally larger than during slow markets.

In normal times, buyers should hesitate before making a deposit that is larger than two percent of the purchase price. Underwriting guidelines sometimes require strict documentation of such deposits. A buyer may often be required to show a bank statement just prior to the date of the check, plus evidence that the check actually cleared the bank. If you're closing quickly, this might require a trip to the teller window at your bank.

There are reasons to try and keep the deposit as small as possible, but not so small that the seller doesn't take it seriously. You see, once a buyer and seller agree to terms, the earnest money deposit is usually placed in a "trust" account. At that point it is no longer the buyer's money -- it belongs jointly to the buyer and seller.

Almost all deals close and the earnest money funds are applied to the buyer's down payment and closing costs. As the saying goes, however -- there are exceptions to the rule.

Some sellers think that if the deal falls through, the earnest money deposit is automatically forfeit. Some buyers think that if the deal doesn't close, they automatically get the money back.

Neither one is true.

Even when the failure to close is the buyer's fault, the seller doesn't have a "right" to the deposit as a way to "punish" the buyer. Nor does the buyer automatically get the entire deposit back, even when they are not at fault.

First, there are normally a small amount of cancellation fees that must be paid. These fees are collected from the deposit. Second, since the deposit is held in trust, both the buyer and seller must agree on the disposition of the funds. This is a quirk of law in most states and the real estate agents and their companies have no control over the situation.

If something goes wrong very early in the deal, the seller normally understands and the deposit is usually returned to the buyer without a fuss. When things go awry later in the transaction, both parties usually exercise common sense and negotiate a fair solution. In a few rare occurrences, the buyer and seller find it difficult to agree.

The point is that is always makes sense to reach an agreement. Failure to agree ties the money up for awhile, could possibly lead to further legal action and inconvenience, and it just becomes a frustrating mess for both sides -- more so than you realize at the time.

Serious problems are the exception, not the rule. Most "challenges" are routine to a qualified professional real estate agent. The situation may be new to you, but the agent may have dealt with it many times in the past.

If you have further questions and even better would like us to represent you on a purchase, please call 301-335-4920.

ALAN A. REZAIE

Wed Apr 2 2008, 14:27

Good morning Steve,

Don't you just love how everyone spends "your" money..? .l.o.l..

"IF" ~ you're pre-approved for that amount, letter in hand and you don't want the seller to paint every other doorknob blue ... then $5,000 would be just about all of it .

It's not the "big" money down that tells the seller your serious - thats the agents job, thats why they get paid - keep in mind, a huge amount of earnest money also keeps you tied down and off the market .... I've seen it more than once with folks that had big money down, but they couldn't buy steam off a hotdog and tied up a home for the next 2/3 weeks on an "if come".

Don't ever put down more than you would lose on a throw of the dice .... so why tie-up a huge sum of money when you could be making offers on something else if this one goes south.

Good luck.!

Thu Feb 7 2008, 06:18

As your buyer's agent, I would recommend that you offer $5,000 - $10,000 in earnest money. Earnest money is highly overrated. Yes it shows the seller that you're serious, and have some funding. But there are so many legitimate ways to exit the contract and retain that earnest money. As your buyer's agent I like to keep the earnest money as low as possible. The potential to lose that money is slim, as long as you follow the terms and conditions of the contract, but I want it to be small enough that if you HAD to breach the contract, the amount wouldn't be a devastating loss for you.

Now, as the Seller's agent, I want to see a more painful amount on the line. I'd like to see a minimum of $30,000, and would much prefer $40,000... but would settle for some amount in between $10,000 and $30,000 if necessary.... Again, since earnest money is very "returnable" within the terms of the contract... I simply like to see enough money on the line, that the buyer won't wantonly walk away from the deal if they should find a different home they like better than ours, selling for substantially less.

Thu Feb 7 2008, 05:28

Steve,
Our advice is: enough to be considered by the seller as a serious buyer but not so much that if you had to back out of the deal and lose your deposit that it would be overwhelming. Keep it real and remember the closing is where large amounts of money should be exchanged.

The "Eckler Team"
Century 21 Almar & Associates
Venice, Fl 34285

941-408-5363

Thu Feb 7 2008, 05:20

If I were your buyers agent I would advise you to put down as little as possible but still make sure that the seller knows that you are a motivated and serious buyer. If you are closing fairly quickly 2- 4 weeks, I would say you could put down less, maybe even 1%. The seller knows that you are serious because you are going to settle quickly. There is less risk in time being lost in the sale of their home. I always advise my buyers to give something to get something...so if you have less to put down make sure that you give something that the seller wants...its all negotiable - especially in this buyers market. Please feel free to call (240-997-88654 or e-mail me (annmarieclements@gmail.com if you have any other questions. I would be happy to help you.

Thu Feb 7 2008, 03:37

The earnest money deposit is one way to demonstrate to the seller your seriousness as a buyer as well as your financial strength as a buyer. The higher the deposit, the stronger you will appear to the seller. Discuss this with your buyers agent and make sure the amount makes sense given your loan terms. If you do not have a buyer's agent, you really should interview several and select one.

Wed Feb 6 2008, 18:51

Steve:

As a listing agent I "try" to make sure that there is AT LEAST a 3% Earnest Deposit. In a perfect world I would hope to obtain a 5% Earnest Deposit.

Gary J. Rudden, Broker/Owner
Congressional Residential Realty

Wed Feb 6 2008, 15:41

Hi Steve:

Listing agents typically like to see about 5% of the sale price as an earnest money deposit. Realistically, $10k -$15k would be a reasonable deposit with your offer.

Wed Feb 6 2008, 15:26

Steve,
Keep in mind that this is a home you want to purchase. What would you as a seller think if a buyer of your $600k home had a deposit of $5000 or less? I would agree that $15-20k (or more) is reasonable. It's part of the money that you're going to be spending to purchase the house any way. I always encourage buyers to have a reasonable deposit. It makes your offer look stronger and it's not money that you are going to lose. If you aren't able to make your financing contingency or resolve inspection issues, the contract generally states that the deposit is returned to you, so you aren't actually taking a risk. A higher deposit will make you look like a more serious, stable and qualified buyer to the seller. It may help you get a better price for the house for that reason.

Ted Stewart
Yerman Witman Gaines & Garceau Realty
Ted@TheBaltimoreRealtor.com

Wed Feb 6 2008, 15:14

Generally; the minimum that a listing agent would accept is 1%; but on a higher end home - 2-5% is not out of the "norm".

Wed Feb 6 2008, 15:12

Hi Steve,

The deposit is negotialble. In this buyers market I would put down as little as possible. $2000-$3000.
Best wishes

Wed Feb 6 2008, 14:53

The earnest money deposit is negotiable, but a typical range is $15k-$30k for homes around $600k.

Wed Feb 6 2008, 14:46