Earnest Money Negotiation

Published by julia | Filed under Buyer / Seller Tips, Market Trends, Miscellaneous, Real Estate, Shout Outs

A purchase agreement for buying a home involves more terms that just the price.  There is personal property to discuss, possession, rent, tests, inspections, closing dates, and more.  One term that throws some buyers, especially first time buyers, for loops is the earnest money deposit.  What is it?  Why do I need it?  Do I really have to give him THAT much?

The first thing to understand is that the earnest money deposit is not the down payment.  Many buyers show up to write their purchase agreements and announce to their agent that they do not have to put an earnest money deposit because they are getting down payment assistance or hundred percent financing.  Things can get hairy at that point.  Communication is very important.  It is not that difficult to see where an inexperienced buyer would confuse one deposit for another, so do not feel bad if you, too, just learned something new.

Unlike the down payment, the earnest money is returned to you at closing.  Whether you actually get the cash back or have it applied toward your closing costs depends on your situation.  Once you submit your earnest money it is held in a non interest bearing escrow account until closing.  The purpose of the money is to provide insurance to the seller that once he starts taking action toward closing, for himself or per request of the buyer, that the buyer won’t lose interest and walk away from the sale.  It the buyer does walk, the seller gets to keep the earnest money, to offset any expenses he has incurred meeting the buyer’s terms, as well as for his inconvenience. 

Just like the sale price, buyers are quick to try and negotiate the amount of the earnest money deposit, too.  If you truly do not have the money then just offer what you can afford.  But if you do have it, keep in mind that you will get it back at the end so trying to negotiate is just adding another element to fuss over.  Sellers like clean deals and especially in the case of a multiple offer deal may take a slightly lower sale price that came with a higher deposit because the seller perceives that buyer as being more serious.  So give the full deposit when you can.

Everyone thinks that their primary concern is the dollar, but when it comes right down to it, a successful transaction with minimal drama is what everyone really wants.  A buyer who is not serious is a buyer who could walk away a week before closing and no seller wants that.  When you find your dream house, make your offer stand out and leave no question as to your seriousness if you want the best chance of receiving an acceptance.