This is a question clients frequently ask me. The general rule for our area is 1-2% of the list price. If you are low-balling, it is generally better to offer more earnest money so that the sellers understand that you have the financial resources to pay for the home (it is just that you disagree with the listing price).
If you have a strong pre-qualification letter or pre-approval letter with at least 10-20% down, you can offer less earnest money. However, if you are putting that much down, you might as well use a portion of that for earnest money and offer less in your purchase price. (Remember, your earnest money goes toward your payment at closing).
These are just a couple strategies. The amount of earnest money you offer is one variable among many when you’re putting an offer together. As you weigh different options and limitations, the appropriate amount of earnest money to be put forth becomes clear.
One more thing: I always recommend giving only a small percentage of the earnest money at contract acceptance, i.e., after the sellers sign. The larger balance of earnest money should be deposited with the listing office only after the home inspection and attorney review process has been completed. That way, in the unlikely event that the home inspection goes badly, the buyer has less money tied up in escrow. Sometimes it takes a week to get a refund of the earnest money. If the seller protests (which rarely, rarely happens) it could take much longer.
Filed under: For Buyers, General Real Estate
