How Much Earnest Money is Too Much?

When making an offer on a home that you are purchasing, the earnest money that you put down can be an important part of the overall process. One reason for this is because it can let the seller know that you are not just interested, but that you are a committed purchaser.

Having some “skin in the game,” as they say, shows that you are ready to take the next step in the purchasing process. Otherwise, without at least some form of consideration or deposit, potential purchasers could essentially make offers on multiple homes without any real recourse for backing out.

But how much earnest money should you be willing to put down? A good “rule of thumb” to keep in mind is that earnest money should typically range between 1 and 3% of the purchase price of the property. With that in mind, if the home that you are buying has a purchase price of $200,000, then the amount of earnest money that you would put down on the home would be between $2,000 and $6,000. In most cases, the higher the amount put down, the more serious your offer is considered to be.

It’s important to keep in mind that if your offer is accepted and the contract does go through, your earnest money will be counted as a part of your overall down payment on the property. Until that time, your funds are held in an escrow account.

If, however, the negotiations were to fall through for some reason and the seller decides to accept another buyer’s offer, then you would receive your earnest money back in full.  There are some conditions that could cause you to lose your earnest money to the seller, but it’s unlikely, especially if you adhere to the contract you sign before you turn the earnest money over.

If you are considering the purchase or sale of a home in the near future, contact us. We can provide you with information on how to move forward, such as how much your current home is worth, as well as details on properties that are currently available in the Grand Junction and Western Slope area!