How does earnest money work when selling a house?

Earnest money protects the seller if the buyer backs out. It’s typically around 1% – 3% of the sale price and is held in an escrow account until the deal is complete. If all goes smoothly, the earnest money is applied to the buyer’s down payment or closing costs.

Why do sellers ask for earnest money?

Sellers might require an increase in earnest money for various reasons. Maybe the buyer has requested an extended period until closing, or they are offering zero or a very low down payment. The seller might have other offers on the property, or maybe the buyer just offered too little money overall.

How much can you put in earnest money when selling a home?

Earnest money is typically between 1% and 2% of the purchase price, but it can go as high as 10%. Since this money will serve as monetary damage if the buyer breaches the contract and fails to close, the seller must also carefully consider what amount would adequately compensate for the lost time in selling the home.

Can a realtor cash an earnest money deposit?

Cash the earnest money deposit. Often an earnest money deposit is a check held by a seller’s Realtor in good faith, but it’s not cashed. “One way sellers can protect themselves from buyers pulling out of a contract is to require that their agent actually cashes the check,” says Brian Davis, co-founder at SparkRental.com.

Can a seller keep the earnest money if the buyer doesn’t close?

Remember, if the contingencies in a sales contract are fulfilled and the buyer still doesn’t close, the seller is entitled to keep the buyer’s earnest money.

What happens if you put earnest money in escrow?

Granted, the earnest money will remain in escrow until the real estate deal either closes or falls apart. If the latter happens, having cashed the check and placed the amount in escrow will prevent the buyer from cleaning the money out of the account the earnest money check is written from, causing the check to bounce.

Where does earnest money go in a sale?

Earnest money protects the seller if the buyer backs out. It’s typically around 1% – 3% of the sale price and is held in an escrow account until the deal is complete. The exact amount depends on what’s customary in your market. If all goes smoothly, the earnest money is applied to the buyer’s down payment or closing costs.

How much can you put in earnest money when buying a home?

An earnest money deposit can be anywhere between 1 – 5% of the purchase price of the home. So, if you are buying a home for $500,000, the earnest money will range from $5,000 to $25,000 and potentially more.

Remember, if the contingencies in a sales contract are fulfilled and the buyer still doesn’t close, the seller is entitled to keep the buyer’s earnest money.

When do you lose your earnest money on a home sale?

If the buyer decides to cancel the sale without a valid reason or doesn’t stick to an agreed timeline, the seller gets to keep the money. These are the most common ways a buyer will lose their earnest money. Adhering to an agreed schedule is very important when it comes to buying and selling a home.