Why is an Earnest Money Deposit Important?

An earnest money deposit, also known as a good faith deposit, is an amount of money that a buyer puts forth when they submit an offer to purchase real estate. It signifies the buyer’s commitment to go through with the sale and demonstrates their intention to move forward in the process. If all goes according to plan, this amount will later be credited towards their down payment and closing costs.

The amount of an earnest money deposit typically varies depending on where the buyer is located, what type of property they are purchasing, and how much competition there might be for that particular property.

Generally, buyers should expect to put forth anywhere between 1-3% of the sale price in order to secure the property. This deposit is typically sent to an escrow account and held there until closing, at which point it will be applied to the purchase price.

The importance of an earnest money deposit cannot be understated as it provides assurance to the seller that a buyer is serious about purchasing their property and provides them with some security in knowing that their time and effort is appreciated by the buyer. It also serves as a guarantee that the buyer will not back out of the deal unless there is a valid reason to do so, such as an issue with the title or if they are unable to secure financing in time. Finally, it incentivizes buyers to act quickly when they find a property they like as it is a sign of their seriousness and commitment to the sale.