First, what is earnest money? Earnest money is commonly referred to as good faith money. These are the funds deposited by the buyer to open the escrow. In states like Nevada and Arizona, earnest money serves as liquidated damages to a seller in the event of a buyer default. Earnest money should always appear on the 1st page of the purchase contract. This will tell you the exact amount the buyer is placing into escrow should the buyer offer be accepted.
So how much Earnest Money is a fair amount? The answer really depends upon the property but a general answer would be 1% of the purchase price.
Can Earnest Money be increased during the transaction? Absolutely, and this happens more often than you might think. Let’s look at an example.. The buyer submits an offer that is contingent upon the sale of the buyer’s home. It wouldn’t be uncommon for the buyer to offer to increase the EMD (earnest money deposit) once the contingency is met. (IE, buyer home closes) Another example might be when the buyer asks for an extension of close of escrow. Let’s say closing was supposed to occur on August 1st but the buyer has asked for an extension until August 15th. The seller might say ok to the extension under the agreement that the buyer increases the earnest money deposited with the escrow officer.
How can the seller retain the earnest money if the buyer defaults? The key here is the phrase “buyer default”. To retain EMD by the seller, the buyer must default in some way. Beyond that, the answer to this question will vary by your specific state. If you have questions about your state, just give us a call or consult with your attorney.