Community Message Boards
Results 1 to 20 of 20

Thread: earnest money when buying a house?

  1. #1
    Join Date
    Apr 2004
    Location
    san francisco
    Posts
    660

    earnest money when buying a house?

    I am looking on line to see some sort of guide for how much to add to the offer of a house in the way of earnest $. One place said 1-3% of the price of the house and others sources say $500-1000.

    Does it vary from region to region? I thought the last time we went through this we offered way more earnest money than $500-1000, but maybe I am wrong.

    thanks

    Meg

  2. #2
    $500-$1,000 is the range for where I live, but out in CA where the housing market can be quite a bit more competitive, I wouldn't be surprised if it were quite a bit more.

    I would ask realtors or other homeowners in your area...............

  3. #3
    Join Date
    Apr 2007
    Location
    Texas
    Posts
    2,713
    It depends on the region. When I lived in Texas it was $500.00 - $1,000.00.

    When we moved to Georgia it was 1% of the sales price.

    I would check with a local realtor to see what is standard in your area.

  4. #4
    Join Date
    Jul 2001
    Location
    Texas
    Posts
    4,482
    It's definitely regional--and it depends on the ups and downs in the market. You may have to put more earnest money down in a seller's market.

    And, you're not "adding" earnest money to the offer. The money is credited to your balance when you close on the house. You forfeit the earnest money if you back out of the deal before closing for some reason.
    I arise in the morning torn between a desire to improve the world and a desire to enjoy the world. This makes it hard to plan the day. ~E.B. White

  5. #5
    Join Date
    Jan 2004
    Location
    Hollywood, California
    Posts
    10,883
    There really is no such thing as "earnest money" because if one backs out of the deal, in reality the money will be returned. I know this from experience.

    My friends who were realtors told me that if I didn't choose to refund the money, the house would be tied up and therefore it was in my (the seller's) best interests to just refund the money even though technically, there had been an offer and acceptance.

    I guess one could choose to keep it -- and certainly I wouldn't recommend that a buyer put down money with the offer thinking they could rescind the accepted offer and get back the money.

    However, my experience (backed up by my realtor friends since I wasn't willing to trust the realtor I was working with in Orange County) was that the money is returned because until it is you are in limbo with the house.
    Some days I pray for Silence, Some days I pray for Soul,
    Some days I just pray to the God of Sex and Drums and Rock 'N' Roll.

    Meatloaf

  6. #6
    Join Date
    Apr 2004
    Location
    san francisco
    Posts
    660
    thanks for this info. I guess I thought earnest money sort of showed how strong your interest is in the property so if you put more in your earnest money you are showing you are 'serious'

    Luckily I am not buying in CA, but in WA state. The houses in the town we are looking at mostly linger on the market for months on end so I don't think we need to be terribly aggressive. Yes, I will ask our realtor.

    Blazedog - I remember our realtor telling us that when we were selling a house. The woman was paying cash for the house (must be nice, eh?) and she put down a HUGE amount in earnest. She just wanted to make sure SHE got the house, I guess.

    Thanks

    Meg

  7. #7
    Join Date
    Apr 2002
    Location
    San Francisco
    Posts
    19,680
    "House" .."Move".."Mortgage".."Money"..blah, blah, blah.

    You goin' to cooking school with me on the 3rd or not?
    Happiness is not a goal, it is a byproduct. - Eleanor Roosevelt

  8. #8
    Join Date
    Apr 2004
    Location
    san francisco
    Posts
    660
    OMG!!!

    I AM GOING TO LOOK RIGHT NOW!

    How did I forget? Ah, yessss the in-laws were in town

    Thanks for keeping my priorities straight!

  9. #9
    Join Date
    Apr 2004
    Location
    san francisco
    Posts
    660
    Are you doing the Thai/Vietnamese one? Geez, way over my head! Did you see the Omnivores Delight on the 3rd?

    I have to decide if I am brave enough to attempt to cook Thai. I L-O-V-E to eat it though.

    We are going up to WA tomorrow!! yikes. Home on Sunday.

    Meg

  10. #10
    Join Date
    Nov 2004
    Location
    NC
    Posts
    2,352
    Quote Originally Posted by mgs View Post
    The woman was paying cash for the house (must be nice, eh?) an


    When we sold our first house the buyers showed up at the realtor's office with a brown paper bag of cash which they proceeded to dump on the table. We're pretty sure it was Mafia money!
    Life is not the way it's supposed to be. It's the way it is. The way you cope with it is what makes the difference.

  11. #11
    Join Date
    Jun 2000
    Location
    Chicago, IL USA
    Posts
    9,076
    Blaze is wrong (at least around here) - earnest money only gets returned if the buyer backs out within the dates set in the contract. There are several dates before closing that must be met - attorney review (typically 5 days), inspection (typically another 5 days) and mortgage contingency date. If the buyer's attorney doesn't like the terms of the contract for example, the buyer can back out of the deal and get his earnest money back as long as it's within 5 days. After that, they are bound to the contract as it stands. Then there is the inspection contingency, which is sometimes waived (although I think that's foolish). But the buyer then has a period of time to get an inspector in the house to see if it's hiding any secret flaws. Once the inspection report comes in, there are oftentimes modifications to the contract, but sometimes the house is so bad the buyers want out and can do so with full return of their earnest money as long as the inspection was done within the time frame allotted by the contract. Then there is the mortgage contingency. The buyer must secure the mortgage by a certain date within the contract or risk forfeiting their earnest money. If I (as a mortgage broker) don't have a clear to close on the buyer's financing, I ask their attorney to get me an extension so as not to risk them losing their earnest money.

    I just did a loan where the mortgage contingency expired and then we couldn't get the loan program they applied for so we went to another program that the buyer didn't want. Since the mortgage contingency had expired she had to forfeit her earnest money ($1000). It's true the seller can, out of the goodness of their hearts, decide to return the earnest money anyway, but they are under no obligation to do so. And it doesn't continue to encumber or impeded the sale of the house by doing so (at least not here in Illinois). So sellers do indeed keep earnest money. I've seen it happen many times (they did in my most recent case).

    As far as how much earnest money, $1000 is typical here, and mgs, it's true that it is mainly to show how "earnest" you are in buying the house. Putting a house under contract typically restricts the seller from continuing to show the house or entertain other offers, so you wouldn't want to put the sale of your house "on hold" for people who are just looking and not serious about wanting your house. And the risk of losing that money causes the buyer to be less of a risk to the seller because the buyer will be more likely to follow the rules of the contract (by getting an inspector in a timely manner, working quickly to get a loan approved, etc.) since the buyer isn't going to want to throw $1000 away.

    More earnest money is typically required in a bidding war situation. The more money put up obviously means the more the buyer is willing to risk losing (technically), so someone who puts up 5 or 10K would come across as someone who is serious about buying and confident in their ability to buy. A fallout deal for the seller is costly in terms of time. You don't usually find out the deal is falling through for 4 to 6 weeks at which time, all that time off the market can be a terrible thing for the seller who may be buying something themselves elsewhere and need to have their old house sold before they can close on the new one. It causes a terrible domino effect and can be disastrous. So sellers like to see bigger earnest money deposits, but in this market where there aren't really bidding wars anymore, $1000 is very typical.

  12. #12
    Join Date
    Apr 2002
    Location
    San Francisco
    Posts
    19,680
    Quote Originally Posted by mgs View Post
    Are you doing the Thai/Vietnamese one? Geez, way over my head! Did you see the Omnivores Delight on the 3rd?

    I have to decide if I am brave enough to attempt to cook Thai. I L-O-V-E to eat it though.

    We are going up to WA tomorrow!! yikes. Home on Sunday.

    Meg
    Sorry, not to derail this grown-ups' conversation, but - YEA, Omnivore's Delight!
    In this One Day class you will learn how to cook and eat with a conscience; that is, cooking produce, fish, poultry and meat in a way that showcases their natural flavor. Some of the recipes you will make with Margaret are Scallop, Pea, and Pearl Onion Stew; St. George Cheese Stuffed Potato Cakes with Avocado, Red Onion and Cucumber Salad; Roasted Asparagus with Green Goddess Aioli; Pacific Halibut with Corn Salsa and Tomato Vinaigrette; and Strawberry Rhubarb Crostata with Caramel Sauce.
    Happiness is not a goal, it is a byproduct. - Eleanor Roosevelt

  13. #13
    Join Date
    Aug 2002
    Location
    Oakland, CA
    Posts
    1,896
    Quote Originally Posted by Grace View Post
    Blaze is wrong (at least around here) - earnest money only gets returned if the buyer backs out within the dates set in the contract.
    Maybe it's a California thing. I know when we sold my father's house the real estate agent told me that the buyers do get their deposit returned if they back out of the deal. It might not be a legal obligation, but this is apparently how it's done in practice.

  14. #14
    Join Date
    Jan 2004
    Location
    Hollywood, California
    Posts
    10,883
    Quote Originally Posted by Clover View Post
    Maybe it's a California thing. I know when we sold my father's house the real estate agent told me that the buyers do get their deposit returned if they back out of the deal. It might not be a legal obligation, but this is apparently how it's done in practice.
    As I tried to explain, "legally" one can choose not to return the "deposit" given with a written offer. However, what then will happen is that you can not offer the house to other potential buyers without telling them that there is someone else who has a legal right to purchase the property.

    One is therefore tying up the property for a paltry sum of money. I don't know anyone in California who keeps the deposit because it is such not worth $1000 or so to have one's property off the market for an indeterminate period of time.

    As I stated, I asked several realtor friends since I thought the realtor just wanted the least amount of hassle.

    Of course, real estate is a local affair -- however, it is quite WRONG to tell me that I am WRONG .

    ETA -- Especially when the OP is located in San Francisco -- last time I checked that was in California.
    Some days I pray for Silence, Some days I pray for Soul,
    Some days I just pray to the God of Sex and Drums and Rock 'N' Roll.

    Meatloaf

  15. #15
    Join Date
    Aug 2001
    Location
    Southeastern CT
    Posts
    2,357
    In Connecticut, it is similar to what Grace described. We had mortgage issues at the last minute and were looking at the possibility of having to back out of our deal. In order to get our earnest money back, we were going to have to get a letter from the mortgage company saying that they could not give us the mortgage. Thankfully, the sellers gave us an extra week, and we were able to get the mortgage we wanted with a different lender, so it wasn't an issue in the end.

    We gave $1000 in earnest money with our offer, and then added $4000 once we had a contract signed. That is what our realtor told us was customary in this area.
    <)>>< Candace ><<)>

  16. #16
    Join Date
    Jan 2004
    Location
    Hollywood, California
    Posts
    10,883
    Quote Originally Posted by cangoss View Post
    In Connecticut, it is similar to what Grace described. We had mortgage issues at the last minute and were looking at the possibility of having to back out of our deal. In order to get our earnest money back, we were going to have to get a letter from the mortgage company saying that they could not give us the mortgage. Thankfully, the sellers gave us an extra week, and we were able to get the mortgage we wanted with a different lender, so it wasn't an issue in the end.
    .
    In my experience (California) the offer is written with contingencies such as subject to obtaining financing or passing inspection or even selling one's own house. If a contingency isn't met, there isn't even a question regarding return of the "deposit". And since the more standard "subject to contingency" will offer a seller grounds for getting out of any sale since they are free to make a counter offer (i.e. drop the price $10,000).

    Of course an inspection costs the buyer money, so typically if they really want to back out of a deal for no cause, they do it with no real reason.

    My post is purely on the practical significance (or insignificance) of attempting to hold a buyer to the contract by keeping the deposit since it wastes valuable time when the house can't be effectively marketed.

    Unfortunately, one might technically have a contractual right but the real life cost of enforcing that right makes it meaningless.
    Some days I pray for Silence, Some days I pray for Soul,
    Some days I just pray to the God of Sex and Drums and Rock 'N' Roll.

    Meatloaf

  17. #17
    Join Date
    Jun 2000
    Location
    Chicago, IL USA
    Posts
    9,076
    Quote Originally Posted by blazedog View Post


    As I tried to explain, "legally" one can choose not to return the "deposit" given with a written offer. However, what then will happen is that you can not offer the house to other potential buyers without telling them that there is someone else who has a legal right to purchase the property.

    One is therefore tying up the property for a paltry sum of money. I don't know anyone in California who keeps the deposit because it is such not worth $1000 or so to have one's property off the market for an indeterminate period of time.
    As I tried to explain, this is NOT true around here. Keeping the earnest money does NOT tie up the property for another potential buyer. The person whose earnest money has been kept does not continue to have a legal right to purchase the property. The contracts must be written differently here.

    And I said you were wrong (at least around here). So I qualified that statement. You must have missed that.

    And if the earnest money will be returned no matter what, then really, it doesn't serve any purpose at all. So why even have it? There is no incentive of "good faith" on the part of the potential buyer. I can go out tomorrow and put an offer in on someone I hate's house, just with the sole purpose of tying it up. Let's say my friend's cheating ex husband is trying to sell his house and my friend doesn't want him to be able to sell just to screw him up. So I go over and put in an offer on his house with no intention whatsoever of ever buying it. If I can't lose my earnest money, then what's to stop me from doing that?

    Here contracts are taken much more seriously. And you can't just "say" you didn't get financing if you decide you don't want the house, you DO have to get a letter from the lender showing you were denied financing (and no lender will write such a letter if it isn't true - the lender could get sued), and our purchase contracts are written with a clause that then allows the seller to try and find financing on behalf of the buyer - and the buyer is obligated to take the financing found by the seller as long as the interest rate for the loan isn't higher than a rate determined at the time the contract was written. As a mortgage broker, I have been called on by many sellers trying to exercise their rights under that clause.
    Last edited by Grace; 04-24-2008 at 11:00 AM.

  18. #18
    Join Date
    Apr 2004
    Location
    san francisco
    Posts
    660
    Canice - Omnivore's delight then??

    In Cleveland the situation was as Blaze described. I suppose if we really wanted to pursue it we could keep the earnest $ but it wasn't really worth it in the long run b/c the money gets tied up in legal issues if you truly want it. So it is more of a gesture, and for the most part if things fall through the seller just gives the $ back. It must be different in every community. In Ohio you don't need an attorney to buy/sell. Apparently not in WA. In fact you don't even have to be present for closing, your realtor (notary) can sign on your behalf!!!

    Thanks so much for all the tips and advice, as usual.

    Meg

  19. #19
    Join Date
    Jan 2004
    Location
    Hollywood, California
    Posts
    10,883
    Quote Originally Posted by Grace View Post
    As I tried to explain, this is NOT true around here. Keeping the earnest money does NOT tie up the property for another potential buyer. The person whose earnest money has been kept does not continue to have a legal right to purchase the property. The contracts must be written differently here.

    And if the earnest money will be returned no matter what, then really, it doesn't serve any purpose at all. So why even have it? There is no incentive of "good faith" on the part of the potential buyer. I can go out tomorrow and put an offer in on someone I hate's house, just with the sole purpose of tying it up. Let's say my friend's cheating ex husband is trying to sell his house and my friend doesn't want him to be able to sell just to screw him up. So I go over and put in an offer on his house with no intention whatsoever of ever buying it. If I can't lose my earnest money, then what's to stop me from doing that?

    Here contracts are taken much more seriously. And you can't just "say" you didn't get financing if you decide you don't want the house, you DO have to get a letter from the lender showing you were denied financing (and no lender will write such a letter if it isn't true - the lender could get sued), and our purchase contracts are written with a clause that then allows the seller to try and find financing on behalf of the buyer - and the buyer is obligated to take the financing found by the seller as long as the interest rate for the loan isn't higher than a rate determined at the time the contract was written. As a mortgage broker, I have been called on by many sellers trying to exercise their rights under that clause.
    Contracts are taken seriously in California -- however, sometimes enforcing them doesn't make sense in the real world because the cost of enforcing them and/or the hassle just doesn't survive a rational cost benefit analysis.

    The reason why a house is tied up is that if the seller doesn't give back the money, the buyer has the right to purchase the house until the parties either settle or the matter is litigated. Therefore, the marketability of the house is impacted.

    Of course a contingency in a contract needs to be satisfied -- financing being one of them and if the buyer has financing, then they can't just claim not to have it. Anything that impedes the clear title of a house is NOT something that most people want -- one of the reasons people hate contingencies based on sale of another residence is that future buyers will be very reluctant to make an offer on a house knowing that someone else has the right to match the offer.

    However, the huge loophole would be the inspection since any house is going to have items that aren't 100% perfect. At that point, the buyer can contractually back out (or make a counter-offer that won't be accepted).

    One of the first things one learns as a lawyer is that one can have a right but not a remedy -- in this case, one can technically have the right to have a buyer forfeit a deposit but in the real world, this is never going to happen -- at least in California. It has nothing to do with taking contracts seriously but everything to do with the pain and hassle of disputes and litigation.
    Some days I pray for Silence, Some days I pray for Soul,
    Some days I just pray to the God of Sex and Drums and Rock 'N' Roll.

    Meatloaf

  20. #20
    Join Date
    Aug 2001
    Location
    DC Area
    Posts
    1,097
    In NOVA it varies. We just put 10k down on a home we purchased in March. The sellers countered for more, we refused and luckily they didn't push it.

    Actually, we put 10k down on the previous house we had a contract on, but we backed out prior to the home inspection contingency expiring due to issues (radon levels) that arose that we didn't want to deal with. In this case, the return of the EMD was a given as we were within the contingency periods. Others would have been financing approval, review of HOA docs, VA appraisel addendum, etc.

    However, at least in VA once your contingency periods expire your EMD is at risk. Otherwise, why would they have an EMD in the first place? Here, both the agent for the buyer and seller as well as the sellers have to sign a release to refund the EMD.

    Also, in VA if the contingency periods have expired the buyer is on the hook to purchase the home or forfeit the EMD. So, after contingencies expire one can assume the house will be sold at closing, or could be relisted if settlement doesn't occur for whatever reason......regardless of there being EMD in escrow. That is my understanding of the purpose of the EMD, to give the seller assurance that the buyer does, indeed, intend to follow through with the transaction to settlement.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •