Downtown Redlands - Orange Street Alley

What Redlands Homebuyers Need to Know About Earnest Money

Putting your first offer in on your dream home is exciting and stressful, and you want to make sure you’re putting your best foot forward with the seller. Today, we’re going to help you out by making that initial offer great from the very beginning and go through what Redlands homebuyers need to know about earnest money.

What Is Earnest Money?

Many home buyers have a tendency to confuse earnest money with the full down payment on a home, and these are two distinctive things when first putting in an offer. 

Earnest money is an amount of money the buyer decides to put down as a deposit along with their offer in order to show their commitment and serious intent in pursuing the property. On the other hand, the down payment is oftentimes a much larger amount of money committed to begin paying off the buyer’s mortgage while providing upfront funds for the seller. 

Having made that differentiation, if the sale of the home is completed, the earnest money is then applied to your down payment or closing costs.

How Does It Make Any Difference in a Sale?

After understanding what earnest money actually is, it can seem as if maybe it doesn’t serve much of a function as it eventually gets rolled into your down payment or closing costs. 

The purpose of paying these funds initially is to signal your willingness to enter negotiations with the seller in good faith with the clear and honest end goal of purchasing the property from them. It helps to solidify the concept that you are turning your attention to moving forward with the transaction on a specific property while letting other opportunities fall to the wayside, even temporarily. 

Not all offers will come with earnest money attached, and they are likely to be considered less serious than offers that do include it.

How Much Is Enough?

The simple answer to how much earnest funding you should put down is typically between one and three percent of the offered purchase price of the home. This isn’t set in stone, but it’s important not to go overboard in an attempt to muscle your way in on the property. 

An offer that comes in with exceedingly high or low earnest commitments can appear a bit haphazard or sleazy. Try sticking to the normally expected one to three percent of the offer’s purchase price and you should be hitting that happy medium. 

After all, there are other ways to separate your offer from the rest of the pack, from repair and inspection contingencies to the offer price, getting creative can make your offer stand out substantially.

What If the Sale of the Home Falls Through?

When you commit earnest money with an offer on a home, the funds go into an escrow account to provide protection for both the buyer and seller. If you then find yourself in a scenario where the sale of the home fails due to any number of reasons, the money you put down that was placed in that escrow account is returned to you. 

However, it should be noted that, in order for this to happen, appropriate stipulations need to be included in any paperwork you sign to create these protections and facilitate the normal transfer of the earnest money back to you in these circumstances. 

If you’re currently employing the services of a real estate agent, they surely have boilerplate paperwork and infrastructure set up to make certain everything regarding your funds goes according to plan.

Help Understanding Earnest Money in Redlands Real Estate

If you’re wondering how much earnest money to put up when looking for a home, contact us today at (951) 232-9704!

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