Earnest money describes the amount of money that the buyer submits to the seller with an offer to purchase a home. There is no hard and fast rule about the amount to deposit, although 1 percent to 2 percent of the purchase price is typical. In many cases, you can buy a home without offering earnest money by getting a seller to waive this requirement.
Earnest Money Vs. Down Payment
Many home buyers confuse earnest money with a property's down payment. Earnest money shows the buyer you are serious about purchasing the home and it indemnifies the seller against expenses he might incur should you back out for reasons other than those stated in the contract.
The down payment, on the other hand, is a lender requirement. Even if you are obtaining a mortgage that requires no down payment, such as through government programs, the seller will still expect an earnest money deposit. While buying a home without providing an earnest money deposit isn’t impossible, it is quite challenging and very rare.
Requesting Waiver of Earnest Money
Ask your real estate agent to call the listing agent and request a waiver of the earnest money deposit. Most sellers won’t agree to this, but it’s worth a try.
Purchasing a FSBO Home
Purchase a for-sale-by-owner (FSBO) home. Because these homeowners are typically less traditional than those who hire agents to sell the home, they may be more amenable to waiving the earnest money deposit.
Purchasing a Home with Cash
Purchase a home with cash and commit to a quick close. This may convince a seller to waive the earnest money deposit, particularly if you have a contract in hand.
Purchasing a Seller-Financed Home
Purchase a seller-financed home isn't a guarantee that the seller won’t demand an earnest money deposit. It is, however, an easily negotiable deal for the "motivated seller" who is ready to close ... as long as you're equally ready to close on the purchase.
Purchasing a Lease-Purchase Home
Buy a home with a lease-purchase. In this scenario the buyer promises to purchase the home within a particular time frame. Although earnest money is typically requested, you may find a seller who will waive it. Be aware, however, that if you fail to perform the seller may take you to court.
Don’t confuse this process with the lease-option. The lease-option process requires what is known as “option consideration” money, typically an amount substantially larger than a standard rental security deposit.
You will have an easier time using these tactics during a buyer's market when there are lots of homes on the market but few buyers.
- What Is Earnest Money And How Much Is Enough? | Rocket Mortgage
- The Mortgage Reports: What is Earnest Money, When Do I Need It, and How Much?
- California Association of Realtors. "The Transaction From End to End." Accessed Jan. 25, 2020.
- California Association of Realtors. "California Residential Purchase Agreement," Page 8. Accessed Jan. 25, 2020.
- Consumer Financial Protection Bureau. "Mortgage Closing Scams: How to Protect Yourself and Your Closing Funds." Accessed Jan. 25, 2020.
- Cincinnati Area Board of Realtors. "Earnest Money." Accessed Jan. 25, 2020.
- Nolo. "Earnest Money: What Happens When Your Home Purchase Falls Through." Accessed Jan. 25, 2020.
- You will have an easier time using these tactics during a buyer's market when there are lots of homes on the market but few buyers.
Based in the American Southwest, Bridget Kelly has been writing about gardening and real estate since 2005. Her articles have appeared at Trulia.com, SFGate.com, GardenGuides.com, RE/MAX.com, MarketLeader.com, RealEstate.com, USAToday.com and in "Chicago Agent" magazine, to name a few. She holds a Bachelor of Arts in English with a concentration in creative writing.