Buyers: Understanding Earnest Money

There are a lot of things that go into putting together a successful offer to purchase property in the Northern Virginia real estate market. One aspect, the importance of which is often overlooked, is the Earnest Money.

In Virginia, an offer to purchase a home or land requires consideration. This is called Earnest Money in our contract. This consideration is an amount, selected by the buyer, that demonstrates to the seller the buyer's intent to follow the contract through to settlement.
My clients often ask me 'how much' Earnest Money is expected. There is no set answer. I have read about percentages of sales price, but in my experience, it is more about the amount being significant enough for the seller to believe that the buyer won't walk away.  The higher the listing price, the higher the amount the seller will expect. It is not uncommon for the Earnest Money amount to be part of the negotiations. For example, a seller may be willing to go down a bit on the sales price if the buyer is willing to put up more Earnest Money. It is, obviously, in the buyer's interest to keep the amount as low as the seller is willing to accept, but still have it be significant enough that it shows solid intent.
Earnest Money is not deposited until the contract is 'ratified,' (ie. all parties sign and agree upon all parts of the contract). Once the contract is ratified, the Earnest Money is deposited into an escrow account held by the party specified in the contract to hold the money.   At closing, it is applied toward the buyer's down payment and/or settlement costs.
The Earnest Money is not 'at risk' until all of the contract contingencies have been removed. It can be returned to the buyer, with no penalty, if a contract is voided due to failure to remove a contingency that results in a contract void. Once the contract is 'non-contingent,' however,  the buyer must close on the property or risk losing the Earnest Money to the seller.
The Earnest Money must be cash-on-hand at the time the contract is written. The buyer cannot write a contract and 'save-up,' during the contract period. This money must be deposited, by law, within a certain amount of time after the contract is ratified. There is a provision in the contract that allows delivery after the fact, but it is measured in days--not weeks or months--and the check must be able to be immediately deposited (no writing a check without the funds to back it up allowed).
Understanding all aspects of putting together a contract, including determining the Earnest Money amount, is important to successfully purchasing your new home!


If you like what you've read, please consider subscribing to my blog by clicking on the Orange RSS button and following the instructions. Thanks!

 Momentum Realty

A GREAT Real Estate  experience.

If I can help you, your friends or family buy or sell their next home in Northern Virginia, please let me know!

If you need help with a home outside of Northern Virginia, I have an extensive network of referral agents and will make sure you are working with the best!

The contents of this blog may not be copied or reproduced without the permission of Holly Weatherwax.




Comment balloon 0 commentsHolly Weatherwax • May 04 2015 08:04AM
Buyers: Understanding Earnest Money
There are a lot of things that go into putting together a successful offer to purchase property in the Northern Virginia real estate market. One aspect, the importance of which is often overlooked, is the Earnest Money. In Virginia, an offer to… more
Phrases you don't want buyers to say--and tips to avoid them
Here are some phrases that a Buyer's Agent (or seller) never want to hear spoken at a listing showing: 'Dated' 'Deferred maintenance' 'Ugly' 'Bland' 'Dirty' 'Smelly' 'Old' Here are some… more
How my Clients Sell a Home
Last week I wrote a post, How My Clients Buy a Home and so this week, I thought I would write a similar one about how I work with sellers. When someone contacts me about selling their home, our first step is to sit down and discuss… more
Are Real Estate Agents Sales People?
If you are a Realtor, you have probably struggled with the question of whether or not you are a sales person. Of course, the answer is 'yes, ' but the product is not what the public thinks. I sell myself to my clients. They need to… more
How My Clients Buy a Home
I read a post recently (and I apologize for not linking it, but I cannot find it! ) about how millenials are being grouped together and treated as a single entity for marketing purposes. The auther stated, correctly, that they should not all be… more
So your house has been listed for a couple of years?
There is one house that I have been watching for a couple of years now. Yes, you read that right--a couple of years. It has been listed a number of times, taken off the market and relisted. I have shown it to… more
'They' might be watching… and I don't mean Big Brother!
If you are just thinking of beginning your home search, something really big has probably changed since you last toured homes. More and more homes are taking advantage of home technology and installing home cameras It used… more
What Can a Realtor® Do For Me?
This week I got an email from a customer who said that over the weekend they had purchased a new construction home. We had plans to meet and review my services, but before we got a chance, they bought a new home and gave up their right to… more
The new program that will wreck havoc on home sales!
On January 26, Fannie Mae will roll out a new program designed to facilitate appraisals The problem is that it will do anything but make this process easier or more effective! The theory is that rather than having the… more
Recycle your Christmas Cards with St. Jude's Ranch
Happy New Year to all of you! I know many people like to keep their Christmas decorations up a little longer, but I like to get my house back to 'normal, ' right after New Year's Day. Every year, as I am putting away the decorations, I sort… more