Earnest money, also known as a good faith deposit, is a deposit made by the potential home buyer before closing to show that they are serious about buying the house.
Earnest money is submitted when your offer is accepted, and then it is applied toward your down payment or closing costs. It is typically around 1% – 3% of the sale price and is held in an escrow account until closing.
Earnest money protects the seller if the buyer backs out and the seller has to relist the home and start all over again.
It protects the buyer if something is wrong with the property. If the deal falls through due to a failed home inspection or any other contingencies (or certain criteria) listed in the contract, the buyer gets their earnest money back.
Your real estate agent will provide direction on how much earnest money you should offer. In a competitive buyer’s market, some earnest money deposits are increasing to show seriousness and aggressiveness.
In a slow or moderate market, your agent will advise you if an earnest money deposit in the standard range is acceptable.