HOW MUCH SHOULD YOU PUT DOWN IN AN EARNEST MONEY DEPOSIT?

If you have found a house that fits everything you are looking for, you want the seller to consider your purchase offer above those of other bidders. However, the seller will probably pass on your offer if you do not add an earnest money deposit with your bid. So before you place an offer to buy a home, consider how much of your money you want to place in an earnest money deposit.

As Forbes explains, there is no set amount you must invest as part of an earnest money deposit, so you have a lot of latitude to determine how much you wish to invest. However, certain considerations may dictate whether you want to put in a high or a low deposit.

Why Some Buyers Invest Higher Amounts

Generally, many buyers will place an amount of 1% to 5% of the sale price of the home in an earnest money deposit. While you can invest a small amount, you risk the seller not taking your bid seriously. If you go ahead with a larger deposit, the seller may take it as a sign that you are confident enough in your bid that you would risk a significant amount of money up front.

Ways to Protect Your Deposit

Another way to decide how much you should invest is to think about how much money you would be willing to lose. If for some reason you do not want to go through with the purchase of the home, it might constitute a break of your contract with the seller. If so, the seller could keep your deposit as compensation for the loss of your offer.

However, a real estate contract might protect you from the loss of your money. The contract may contain a contingency that returns your money to you if you back out of a sale. You may also ask your real estate agent about ways to protect your deposit. With a contract that better protects your investment, you may feel more confident about risking more money.