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Dallas Real Estate -What is Earnest Money and How much is acceptable?

I get asked two questions a lot:
1. What is Earnest Money?
2. How much Earnest Money is acceptable for an offer?
The easiest answer to what earnest money is, is that it's "good faith" money.  When you put up earnest money with your offer, you're offering good faith to the seller that you will do everything possible to obtain financing or come up with the cash to buy their home.  In Texas, earnest money is not necessary within a contract/offer, but it is definitely customary as I don't know a single agent that would advise their sellers to accept an offer written without it.  Earnest Money is traditionally refunded back to the buyer if they made every good faith effort to buy the home, but then still failed to do so.
As for the amount, it depends on the rest of the offer.  There is no stock answer to this question.  I can say that the traditional amount is $1000, but as the price of the homes go higher and higher, many sellers are wanting at least 1% as earnest money.  Earnest money can also be split into two different deposits.  What I've been doing with my buyers lately is putting up $1000-1500 at the time of the initial execution of the contract, allow my buyers time to run inspections, and then the contract is written for a second deposit of $1000-1500 after 20 days.  This shows the sellers that the buyers aren't going anywhere.
Keep in mind that as long as you put the contract contingent upon your financing, as the buyer, you will retain your earnest money over 99% of the time if something happens.  Also, when you do move forward to closing, your earnest money is waiting for you at the title company and it will be used for your closing costs and/or down payment as that money is always yours.
I hope that has helped explain things in terms that are more understandable than legal jargon.
Comment balloon 1 commentDonna Harris • July 05 2006 10:37AM
Dallas Real Estate -What is Earnest Money and How much is acceptable?
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