Sometimes called good faith money, earnest money is money that the buyer deposits at the time of an accepted offer. This money is exchanged as a monetary declaration of the buyer’s intent and ability to buy. It is typically held by the brokerage of the listing agent and deposited in an escrow account. This money is then credited back to the buyer at closing.
How much is appropriate?
There is no set amount that is deemed appropriate or typical, every situation is different. The amount of earnest money given is dependent on the cost of the house and the financial situation of the buyer. For example, it would not show a serious intent to offer $100 in earnest money on a million dollar home. Talk to your Realtor about what is common practice in the area.
What if someone else wants to pay the earnest money?
Receiving money as a gift can be used for earnest money. It is recommended to speak with your lender first and make that if any extra documentation is required that you can easily provide that.
What happens if the deal falls through during the due diligence period?
During the due diligence period, the buyer has the right to back out of the contract and get back their earnest money. Although no one wants to see this happen, there are any numbers of reasons as to why this is necessary. In the event that the buyer fails to properly withdraw before midnight of due diligence expiration, they have lost the opportunity to reclaim earnest money and are liable for the conditions of their contracts. However, communicating with your Realtor and watching deadlines can easily avoid all of that.