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What is Earnest Money and how does it affect the seller?How much Earnest Money do you get and how important is it? To find out, watch the video below.
Earnest money is monetary proof that the buyer is serious about buying your home. Earnest money may accompany an offer or it may be due within a certain amount of time after the offer’s accepted as per the terms of the written contract.
When the earnest money has been received, the money is documented with a receipt and it is deposited into a trust account usually with the real estate company or title company. Earnest money gives the seller some protection during the time their property is off the market and provides them some reassurance that the buyer will not just back out without having a good reason for doing so, as specified in the contract.
As I’ve mentioned before, in a seller’s market with few properties available and many buyers searching, much like we’re experiencing right now, a seller may receive multiple offers on a home. Savvy buyers in many markets are increasing the amount of earnest money they’re offering in order to signal to the seller that they are very serious.
In the Casper area, earnest money is usually somewhere between $500 to $2,000 depending on the purchase price of the property, but the amount of earnest money that is offered and ultimately required for the offer to come together is ultimately up to the buyer and the seller to negotiate.
When making an offer, the buyer decides on an initial amount of earnest money they’ll offer. If the seller chooses to negotiate the offer, they’re evaluating not only the purchase price but also the amount of earnest money the buyer is offering. A seller may accept the amount of earnest money offered or they might counter the offer for a higher amount of earnest money.
At closing, the earnest money that is held is then credited towards the purchase price. For example, if the buyer’s closing figures show that the buyer needs to bring $2,000 at closing and the buyer has initially presented $500 earnest money, then the buyer will bring $1500 to closing for the total payment of $2,000.
There are some ways that buyers might get their earnest money back. For example, after a buyer completes inspections, if they do not like the results of the inspection for any reason, unless the contract states otherwise, they can cancel the contract and receive their earnest money back. Potentially this could happen if the buyer fails to qualify for the loan for some reason as well. It could also happen if the appraised value comes in lower than the purchase price and the contract contains an appraisal clause stating that the property must appraise for a value equal to or greater than the purchase price or be renegotiated, but you and the buyer cannot come to an agreement about the purchase price.
There are some scenarios that may occur in which the seller may be entitled to keep the earnest money. One example would be if the buyer has done inspections per the terms of the contract, but they don’t object to the property condition in writing by the objection deadline. Then they elect to walk away from the contract due to the property condition, leaving the seller no choice but to start all over with the process of finding another buyer.
These are just a few examples of how earnest money affects a seller. I can’t emphasize enough the value of working with an experienced agent when you are selling your home, someone who can guide you through every step of the process. We want to set you up for selling success.