When a buyer writes an offer on a home, they specify in the sales contract the amount of money they’ll put toward their earnest money deposit as well as the deadline for when those funds have to be deposited with the escrow agent. (Normally, the escrow agent is the settlement company).
An earnest money deposit is supposed to show good faith that the buyer is seriously invested in purchasing the property, and it goes toward their down payment and closing costs at settlement. If the buyer were to default on the contract, it is money that the seller could go after for damages. In Northern Virginia, the normal earnest money deposit is typically 1% to 3% of the purchase price, but that can vary. If there are multiple offers on a property, a buyer may want to increase their earnest money deposit to make their offer appear stronger in the eyes of the seller, who’d be bearing a certain degree of risk by taking their property off the market.
Both parties have to agree to the disposition before the funds get released to either party. If the buyer has a home inspection or finance contingency (or any other kind of contingency, for that matter), they could use those contingencies as options to void the contract, in which case they’d receive their earnest money back. Once a contingency period expires, the earnest money is at risk.
“A buyer may want to increase their earnest money deposit to make their offer appear stronger.”
Hopefully, you found this overview helpful. If you have further questions about this or any other real estate topic, please feel free to contact us via phone or email. We’d love to hear from you, and find out how we can be of service.
