An earnest money deposit is made when a buyer makes a serious offer to a seller of any property. The “earnest money” deposit does just that; it shows your good faith in purchasing the property. An earnest money deposit is not a set amount of money, and can vary significantly. Your earnest money deposit can vary based on the purchase price of the property, your competition and your real estate market.

In a normal market, most buyers shouldn’t need to place a deposit of any more than 2% of the home’s purchase price. In a bidding war, however, sellers will be likely to choose not only the highest sales price, but the most attractive offer—which could be a quicker closing, a higher deposit and fewer contingencies.

Your earnest deposit goes into a trust, or escrow account, which can be managed by a title company or attorney’s office, and is considered to belong to the buyer and seller at that point. If everything goes smoothly, your earnest money will be applied to your down payment requirement. However, if the deal doesn’t go through, the money doesn’t always necessarily go back to the buyer. Your contract should outline the stipulations of your earnest money; that is, if you have an inspection contingency of ten days, and you cancel anytime within those ten days, your money should be returned to you.

If you get farther into your contract, however, and passed your contingency periods, then your earnest money deposit gets locked in and is no longer refundable. Normally there can be cancellation fees that apply, which are collected from the funds upon their return. Your licensed real estate agent should understand exactly how much of a deposit you need in a given neighborhood and market. If you’re making the offer alone, there are a couple factors to consider when determining your best earnest money deposit.

How Badly you Want the Property – If this is your dream house, which you would buy no matter what turns up in the inspection, then you may want to offer more of a deposit. If you plan on buying the property either way, then you won’t need any contingencies. This can be tricky, however, and mostly Realtors would not advise buying without an inspection and contingencies. If you’re facing competition on a house, your agent should help your determine a reasonable and fair Earnest Money Deposit. If you’re looking at Denver Colorado homes for sale, contact an experienced PorchLight Real Estate Agent to help with all your real estate needs.

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