Understanding Earnest Money Deposits in Real Estate Transactions

Understanding Earnest Money Deposits in Real Estate Transactions

In the world of real estate transactions, earnest money deposits play a crucial role in sealing the deal. If you're unfamiliar with this concept or looking to deepen your knowledge, you've come to the right place. In this blog post, we'll explore what an earnest money deposit is, the common amount to offer, and share some valuable tips to make the most of this process.

What is an Earnest Money Deposit?

An earnest money deposit, often referred to as "EMD," is a sum of money provided by the buyer as a demonstration of their serious intent to purchase the property. It serves as a sign of commitment and is typically submitted two business days after the seller accepts the buyer's offer. This deposit is held in an escrow account until the closing of the transaction.

Common Amount to Offer:

The amount of earnest money to offer can vary depending on factors such as the local real estate market, property value, and negotiation terms. In many cases, the earnest money deposit is a percentage of the home's purchase price. Commonly, it ranges from 1% to 3% of the property's value. For example, on a $300,000 home, the earnest money deposit may fall between $3,000 and $9,000.

Tips about Earnest Money Deposits:

  1. Understanding Local Market Norms: Familiarize yourself with the customary earnest money deposit amounts in your local market. In Washington State a seller cannot keep more than 5% of the purchase price as liquidated damages in the case of a buyer's breach of contract, so any earnest money deposit above 5%, although it may look impressive to the seller, will not actually strengthen your offer in a technical sense. For that reason, in the Greater Seattle market a typical EMD is 2-5% of the purchase price, with the most common amount being 3%.
  2. Demonstrate Seriousness, but Stay Practical: While a higher earnest money deposit can be seen as a stronger commitment to the seller, be cautious not to overextend yourself financially. Remember that the earnest money is due 2 business days after offer acceptance, so it should be liquid cash in your account and available to transfer, not money invested in the stock market or less liquid investments.
  3. Include Contingencies in the Contract: Contingencies are conditions that must be met for the sale to proceed. Common examples include home inspection, financing, and appraisal contingencies. Ensuring these contingencies are present in the contract can protect your earnest money in case the deal falls through due to unforeseen circumstances. If you walk away from a purchase using a valid contingency your earnest money will be refunded.... if you don't have a valid contingency the seller may chose to keep your earnest money as damages.
  4. Review the Contract Deadlines: Pay close attention to the contract timelines, especially those related to the earnest money deposit. Missing deadlines could jeopardize your ability to reclaim the deposit if necessary. Time is of the essence in real estate contracts, and all deadlines are FIRM. Let your agent know right away if you think you may not be able to hit a deadline in your agreement.
  5. Know the Refund Policy: Understand the conditions under which the earnest money deposit is refundable and non-refundable. Contingencies, failed inspections, or financing issues are typically grounds for a refund.
  6. Communicate Openly: Keep the lines of communication open with the seller throughout the process. Transparency and respectful negotiation can lead to a smoother transaction and a higher likelihood of your earnest money deposit being accepted.

In Conclusion:

An earnest money deposit is a powerful tool that can strengthen your offer and demonstrate your commitment to purchasing a property. By offering an appropriate amount and understanding the process, you can increase your chances of securing your dream home while protecting your financial interests.
As always, it's essential to work with a trusted real estate professional who can guide you through every step of the buying or selling process. If you have any questions or need assistance, feel free to reach out to our team at HouseHack Seattle.
Happy house hunting!


We've helped clients build portfolios of gorgeous Airbnb Cabins, become rental property owners and landlords, and use down-payment assistance programs and House-Hacking to afford a better home than they had dreamed was possible. I’d love to hear a bit more about your investment goals, and chat about how I might be able to help.

Follow Me on Instagram