If you’re earnest about buying a home, you submit a “down payment” with your offer to the seller – or pay earnest money.  The amount buyers put down is essentially up to the buyer and the amount recommended varies across the country.

Where I live, we like to see between $500 and $1000 (at least), though three to four short years ago people were getting away with just $200.

Today a $200 earnest money check would signal the buyer is unable to come up with more money, so may be unable to gain financing.  When I work with a seller and a buyer tries to put down a minimal amount, I encourage the seller to counter the offer and ask for a more realistic earnest money amount.

Earnest money checks may be made payable to the listing broker, although it can also go to the title company or the selling broker. It is reimbursable to the buyer under several circumstances, but specifically if contingencies are not met.  For example, if a buyer is unable to get loan approval, if the house does not appraise, or if a major find is discovered during the inspection the buyer can cancel the contract and have their money refunded.

When can a buyer “lose” the earnest money?  If they get cold feet and walk away from a contract for a reason other than a contingency written in the contract.  In this event, not only can a seller keep the earnest money but they can also seek legal advice to sue for breach of contract.

When the contract goes through to closing, what happens to the earnest money in the transaction?  Many contracts are written so that the money is applied to the purchase price on behalf of the buyer (it is their money after all).  The money could also be applied to the closing costs or the down payment.  Finally, the earnest money could be refunded to the buyer at the closing – depending on how the mortgage lender structured the loan.

The earnest money can be just as important to the buyer in the end as it is to the seller in the beginning.