Real Estate Terms to Know: Is an Earnest Deposit Worth It?

Buying or selling, there are key terms which everyone should know about before any offers are made or considered. One key term is Earnest Deposit. This is something which both home buyers and home sellers can benefit from within the negotiation process.

At its core, an earnest deposit is money put forward by a prospective buyer, to show the seller just how earnest they are about buying a home. With money on the line, which either party could lose if negotiation terms aren’t met, this is a key way tool worth putting to use. Home sellers can ask for a minimum earnest deposit with submitted offers.

Typical earnest deposits begin around $1,000- $5,000, depending on the property listing and the current market. In a seller’s market, earnest deposits can get quite high as part of a bidding war between buyers. Whatever the amount, if a sale goes through, the earnest deposit is incorporated as part of the closing process funds.

If a sale doesn’t go through, either the buyer or seller could end up with the cash. This is dependent on the specific circumstances which led to the offer falling apart. For example, if a seller is unable to meet agreed upon contingencies or inclusions, chances are, the buyer will be able to walk away from the deal and take their earnest deposit with them. Or, suppose a buyer’s funding for the property falls through, the seller could be in line to keep the money.

For home buyers, there’s no extra cost to put an earnest deposit down, as you can apply down payment funds for the transaction. For home sellers, an earnest deposit can be like an extra level of insurance. While in offer negotiations, you’re not actively accepting other offers. Until the deal is closed, there’s a risk a sale may not go through. Every day you don’t have your home listed, is a potential loss if a sale goes south. An earnest deposit can help deflect some of that risk.

An earnest deposit is an excellent way for both home buyers and home sellers to hedge their bets during real estate transactions and enjoy some peace of mind in a complex situation. Find out more about earnest deposits with the great post by Investopedia. When you’re ready to buy or sell a home, you want the process to go smoothly. The Jim Powers Team of local experienced Realtors® is here to help you. Visit our website to learn more, then contact us or give us a call at 717- 417- 4111