What's Earnest Money?

Aug 28, 2022
Home Buying Tips

The Importance of Earnest Money in Real Estate

When it comes to buying or selling real estate, understanding the concept of earnest money is crucial. In this article, Lynn Savits from Coldwell Banker will guide you through the details of earnest money, its importance, and how it influences real estate transactions.

Understanding Earnest Money

Earnest money, also known as a good faith deposit, is a financial commitment made by a buyer to demonstrate their serious intent to purchase a property. It is typically a percentage of the overall purchase price and is given directly to the seller or held in escrow by a third-party, such as a real estate agent or attorney.

Role of Earnest Money

Earnest money serves multiple purposes in a real estate transaction:

  • Verifies Buyer's Intent: By providing earnest money, buyers show their commitment and seriousness about proceeding with the purchase.
  • Demonstrates Financial Capability: Sellers often consider earnest money as an indication of the buyer's financial stability and ability to afford the property.
  • Covers Seller's Damages: If the buyer breaches the contract without a valid reason, the seller may be entitled to keep the earnest money as compensation for lost time and potential buyers.

Amount and Handling of Earnest Money

The amount of earnest money can vary depending on the local market and the specifics of the transaction. Typically, it ranges from 1% to 5% of the purchase price. However, in competitive real estate markets, buyers may need to offer a higher earnest money amount to make their offer stand out.

Lynn Savits, your trusted Coldwell Banker real estate agent, can help you determine the appropriate earnest money amount based on current market conditions and local practices.

Once the earnest money is provided, it is either held in an escrow account or delivered directly to the seller, depending on the agreement between the parties involved. If the transaction falls through for a valid reason, such as failing to secure financing or issues discovered during inspection, the earnest money is generally returned to the buyer.

Importance of Clear Contract Language

When including earnest money as part of a real estate transaction, it is crucial to have clear and well-defined language in the purchase agreement. This ensures that both parties understand the terms and conditions, including possible scenarios for earnest money forfeiture or return.

Working with an experienced real estate agent like Lynn Savits can help you navigate the complexities of the contract and provide valuable guidance throughout the process.


Earnest money plays a significant role in real estate transactions, showcasing a buyer's intent, financial capability, and providing security to sellers. Understanding the concept of earnest money and its implications is vital when navigating the buying or selling process.

For professional assistance in all your real estate needs, contact Lynn Savits from Coldwell Banker. With years of experience and in-depth knowledge of the local market, Lynn Savits can guide you through the intricacies of earnest money and help make your real estate transaction a success.

Michaela Berg
Very informative! 💰
Oct 6, 2023