Earnest Money Deposit: Show them you mean business

Some things in real estate aren’t quite what they seem, but an earnest money deposit really is just that—earnest money you deposit to let a seller know that you are serious about buying a property. This deposit is not the same as a down payment; your purchase contract should outline the two amounts (earnest money deposit and down payment) separately.

The amount of an earnest money deposit can vary depending on your situation. It could be a mere formality—as little as a dollar—or it could be a substantial amount.

As a buyer you want to assure the seller that you mean business. If your real estate agent advises you on a minimum amount, you may want to put down more as a show of good faith. (By the way, earnest money deposits are also known as good faith deposits.) In a seller’s market, a buyer must compete with other eager would-be homeowners, so it would be wise to put down more money, not less.

Be advised: although this money is included to the seller your commitment, it should not be given directly to the seller. Instead, give this deposit to a reliable third party (a real estate brokerage, legal firm, or title company) and make sure you get a receipt.