One thing in real estate that is often unspoken of until needed is earnest money. Often times buyers of real estate don't remember about it and most times, first-time buyers have never heard of it. So what is it? It is money that accompanies the purchase agreement to show that the buyer is serious about buying the property; earnest being synonymous with honest....in lay man's terms- it's money that shows you're not going to flake on the deal. These funds are not in addition to the purchase price, they end up being put toward the purchase. For example, if the purchase price is $200,000 with $2,000 in earnest money, the buyer need only come up with an additional $198,000 to fulfill his/her/their commitment.
Buyers can lose their earnest money by backing out of the deal after the purchase agreement has been accepted by both parties. Once a seller accepts an offer on the property, showings will often dwindle or cease altogether, so if a buyer backs out, at least they have something to show for that time wasted.
In my market area, one to two thousand is usually enough earnest money to be considered acceptable- but keep in mind every seller can hold a buyer to whatever he/she/they want. 1% of the purchase price would be nice to see and it would be great if it became an industry standard- it could take all the guess-work out of it. "How much will we need in earnest money?" "2 grand? Yikes- think they'd settle for one?" "Can I get away with 500 bucks, ya think?"
General rule of thumb, the more the better. Think of it as a collateral. If you let me borrow your
car and asked me to be earnest (honest) and leave something to assure that I'd be back with it and I offered you a pack of bubble gum or one of my kids- you'd want the kid right? Sure! I'll steal your car and buy a new pack of Big Red as I fill up the tank- I'm certain to come back for my kid.....................even if you've got a cherried out '69 Camaro! Bottom line is- the more you put up, the more it shows you're serious about a house.
car and asked me to be earnest (honest) and leave something to assure that I'd be back with it and I offered you a pack of bubble gum or one of my kids- you'd want the kid right? Sure! I'll steal your car and buy a new pack of Big Red as I fill up the tank- I'm certain to come back for my kid.....................even if you've got a cherried out '69 Camaro! Bottom line is- the more you put up, the more it shows you're serious about a house. Buyers can lose their earnest money by backing out of the deal after the purchase agreement has been accepted by both parties. Once a seller accepts an offer on the property, showings will often dwindle or cease altogether, so if a buyer backs out, at least they have something to show for that time wasted.
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