When you submit an offer on a home, your agent may recommend making an earnest money deposit. It is a very common thing to do when you find the perfect property and do not want to lose it. If you’re nervous or looking for more information on earnest money deposits, we’re here to help.
This post will:
- Help you understand earnest money deposits.
- Explain when you should make one.
- Share how earnest money deposits can help your home buying experience.
What is an Earnest Money Deposit?
An earnest money deposit is an amount of money you pledge to a seller if that seller accepts your offer. The deposit shows that you are ready to commit to the sale and aren’t going to back out after your offer is accepted.
If the seller accepts your home offer, and you don’t hold up to your end of the contract, the seller keeps the earnest money deposit. This money is not given to the seller immediately. Rather, it’s held in a third-party escrow account until closing.
A seller takes a risk by accepting your offer due to the steps of the home-buying process. By making an earnest money deposit, you’re demonstrating that you’re also willing to take a risk. The deposit helps establish a higher level of trust between both parties, which is advantageous to you.
For example, a higher offer than yours may be in place with no earnest money deposit. But because your offer includes the earnest money deposit, it will appear more legitimate. The deposit can help you get the home without making a higher offer because the seller understands that you are legitimately ready to commit to the purchase. [Read more…]