Travel Agency

In an ideal world, if you found the home of your dreams, you and the owner could sign a purchase contract, followed by a handshake and, later, your down payment. In the real world, in order to prove your offer to purchase a property is "earnest," or "in good faith," you need to put money on the table as soon as the ink of your signature dries on the purchase contract.

This earnest-money deposit is a fraction of your down payment, which indicates the buyer's intent and willingness to execute the agreements, laid out in the contract with the seller. The buyer usually pays it in the form of a personal or certified check issued to the real estate brokerage of choice. The deposit will be held in an escrow account, a type of trust fund controlled by both the seller and the buyer, until you successfully complete the closing.

Earnest payment amounts vary widely. The attractiveness of the home's sales price, the level of interest others have expressed in the property and how quickly a prospective buyer can move from contract to closing, can all influence the sum a seller may request as an earnest-money deposit.

Some industry experts say earnest money should not exceed 3 to 5 percent of the purchase contract, Others say 2 percent should be the maximum, and some sellers don't even compute a percentage but instead ask for flat amounts in the $ 5,000 to $ 10,000 range.

States set their own legal limits to the amount of earnest monies allowed. But average payments depend on general criteria, such as whether we're in a hot or cool housing market, or on very individual ones. A buyer who can only make a minimal down payment may have to fork over more earnest money as a guarantee he or she will come through with a mortgage. Another buyer can make his or her offer to the seller more attractive by padding the earnest money.