You’re ready to make an offer on a home, and you want to let the seller know you’re serious. There’s a simple way to do that: Put down a deposit on the home.
Called an “earnest money deposit,” this check is usually for a small percentage of the agreed-upon selling price, likely 1 to 2 percent. In a hot market, you might need to make a bigger deposit to convince the seller to choose your offer over others, says Realtor.com.
The earnest money deposit doesn’t go to the seller right away; instead, the buyer’s real estate agent puts it in escrow. It stays there until closing, when it will be retrieved and applied toward your down payment. Besides letting a seller know you’re serious about buying their home, the earnest money deposit also ensures that buyers don’t go around willy-nilly making offers on several homes, thereby taking them off the market while they make a decision.
Do you lose the deposit if you pull out of the contract? That depends. Your purchase contract will outline the reasons you can back out of the contract. In many cases, this includes the results of the home inspection. You can get your deposit back (usually minus a cancellation fee) if you walk away from the sale for one of the reasons listed in your contract.
If you back out for a reason not spelled out in the contract, the seller gets to keep your whole deposit. Make sure your contract outlines what happens to the deposit if you pull out of the contract for any reason.
