What is it, how much is it, what happens to it and can I lose it?

In Northern Virginia and Maryland, when you buy a house, you must submit “earnest money” with your offer. The earnest money must be deposited after your offer is accepted. While you’re writing the initial offer, you’ll need to decide how much money you would like to accompany your offer (usually in the form af a check). You want it to be large enough to show the seller you’re serious, but not so large you’re risking a significant amount of money. If they accept your offer and earnest money amount, they will be removing their home from the market which means no more showings or buyers. The amount should be an amount that is substantial to you. If you wrote a $200 check, there’s not a lot holding you to a particular house. I recently had buyers who insisted on writing a $1,000 check. We were told the sellers didn’t consider ours a serious offer and they decided to work with another buyer.

During a hot market (Like the one we’re in!) there may be multiple offers on the house that interests you. A large deposit may impress a seller enough so they will accept your offer instead of someone else’s, even when the competition is offering the same price or even slightly more. In a buyers market the amount can sometimes be smaller but it should still be substantial for the offer to be taken seriously. What amount is substantial? There’s no set rule but I’ll give a couple of recent transaction examples. On a sale of about $300,000 people have written checks for $2,500 – $4,000. On a sale of $700K-$800K the checks have been $7,000 to $15,000. Several years ago in a hotter market, I had a buyer write a $25,000 check on a $600,000 home because he wanted to make sure his offer was noticed (he still lives in that house).

There are usually several contingencies that need to be removed before your money is truly at risk and your agent will make you aware of those deadlines. Contingencies may include:

• Financing
• Appraisal
• Home Owners Association or Condominium Document Review
• Home Inspection
• and possibly many more

After you’ve completed your inspections, you’ve been approved for your loan and all of the contingencies have been removed,  you should be comfortable with your selected home. At that point, your money won’t really be at risk anymore, it’ll be going towards your new home. At settlement your earnest money deposit is given back to you in the form of a credit or a check.