earnest Money

You include earnest money with an offer on a house to show the seller that the you are serious about purchasing the house. It becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if you pull out of the deal for reasons other than those stipulated in the offer. A financing contingency is an example of the latter – if your offer was contingent on getting a loan, and you can’t, you can cancel the contract and get your earnest money deposit back.

The size of the earnest money deposit is up to you, can be determined by the seller, or real estate agent. It is a good idea to ask what the local norm is. You can also do a two-part deposit. You can make an offer with just $100 in earnest money, for example, but specify in the offer that this will be increased to $2,000 once the offer is accepted, or once when an inspection, appraisal or other contingency is met. This keeps your money from being tied up until you know that the seller is serious about selling to you. This will usually still be seen as a serious offer if the deposit is to be seriously increased at some point.