The earnest money deposit is money that is placed into an escrow account. It is sort of like a security deposit. It informs the seller that you are a serious buyer.
The funds will be applied towards the closing of your transaction. This is required in all real estate contracts. If you don’t have at least one percent of the sales price to offer as an earnest deposit, you should wait on placing any offers until you have the funds available. If you are making an offer in a competitive market, you may want to increase your earnest deposit to make your offer stronger than the other offers.
The earnest money deposit is placed into the escrow account within a few days of an accepted offer so you need to make sure you have the funds available for immediate withdrawal. If you decide to cancel the contract while you are in escrow, there is a chance that the seller may be entitled to your deposit. Make sure you read the contract thoroughly so you will know what to expect.
Know this, even if you are within your full rights to cancel the transaction and receive your earnest money back, in some states like Michigan, the seller has the right to hold it up during a dispute over the earnest money. When you place your earnest money check in escrow, there is no guarantee of a quick return should you decide not to by the home for any reason. Ask your REALTOR® about your state laws.
Also, be sure to read your counter offer clearly. It’s not unheard of for a seller to ask the money to “go hard” after a certain point. That would mean they receive the earnest money in full before closing.
Your earnest money should not be taken lightly.
By definition: Earnest: resulting from or showing sincere and intense conviction.
If you don’t intend to buy, don’t put earnest money on the table.