You include earnest money with an offer on a house to show the seller that the you are serious about purchasing the house. It becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if you pull out of the deal for reasons other than those stipulated in the offer. A financing contingency is an example of the latter – if your offer was contingent on getting a loan, and you can’t, you can cancel the contract and get your earnest money deposit back.
How Much Earnest Money?
The size of the earnest money deposit is up to you. Real estate agents will sometimes outright lie, and tell you it is this or that amount, or this or that percentage of the offering price. In reality, you can write the offer with a one dollar deposit if you wish, and agent still has to present the offer.
Naturally, an offer with one dollar of earnest money may not be taken seriously, and the agent may even persuade the seller to reject your offer. It is a good idea to ask what the local norm is. We just bought a house in Colorado, and the agent told us that a $1,000 deposit was normal. Had he said $5,000 was normal,...