Earnest money is the money that the buyer puts down to show that they are, indeed, earnestly interested in buying a property. This means that when a buyer makes an offer to purchase a home, they pledge a certain amount of money that the seller gets to keep if the buyer backs out of the contract after a certain point.
Now, the way that the Utah contract is written, it’s hard for a seller to get any part of the earnest money. In fact, the buyer has up to 21 days after the contract has been signed to back out of the contract and keep their earnest money. If, however, the buyer waits until after the financing deadline has passed to back out of sale, they lose their earnest money to the seller.
Knowing this, how you feel about earnest money will change depending on whether you are the buyer or the seller.
If you are the seller, you know that more earnest money means that the buyer has saved up for a down payment and are more committed to your property. In fact, you can write the contract as a seller so that 1/2 of the buyer’s earnest money goes hard (which means you get the money if they cancel) after due diligence, or the inspection period. The purpose of doing this is to weed out buyers that are wishy-washy and find a buyer who is serious about buying your home.
Now, as a buyer, you don’t want to put down as much money because it could be lost if the sale of the house doesn’t go through. Depending on your price point, the average due diligence amount changes. It’s typically $1,000 for a home that is $300,000 or less. For a home that is in a higher price point, it’s usually a percentage, typically 1% of the price of the home.
This, however, can change depending on your circumstances. I recently represented a client who made an offer on a home that had multiple other offers. How did we win out? We put $20,000 down as earnest money to show how committed we were to the property.
Do you have questions about earnest money? Feel free to send me a message!
