A Guide to Earnest Money for Home Buyers & Sellers


Earnest Money Can Be Key to Buying & Selling a Home in Texas. Here’s Why.

Serious buyers and stand-out offers usually come with earnest money. In fact, no matter where or when you want to buy or sell a house in Texas, earnest money can move a deal forward. It can also be a point of negotiation and a factor taken out of play when deals fall through.

To help you protect your interests when it comes to earnest money — and make the right moves whenever you’re dealing with earnest money as a buyer or a seller — here’s a Realtor’s guide to earnest money in Texas real estate.

This answers common questions about what earnest money is, how it works, and more. If you need immediate help with earnest money because you’re buying or selling a house in Texas now, contact the Realtors at New Home Gurus of Gurus Realty.

What Is Earnest Money & How Does It Work?

Earnest money is a “good faith” deposit showing that buyers are serious about purchasing a home. With earnest money:

  • The amount is specified in the offer or purchase agreement, and it may be negotiated in some cases.
  • An interested buyer gives the earnest money to a Realtor or some other neutral third party to hold.
  • If the transaction goes through, the earnest money deposit can be applied toward the down payment and/or closing costs.
  • This deposit can provide assurances for the buyer and the seller. The buyer gets to advance in the purchase process without competition because sellers usually put up a “sale pending” sign, take the listing off the market, and/or agree not to accept competing offers (once earnest money is received). The seller gets confirmation that buyers are serious; if the sale falls through, they may be able to keep the earnest money.

Additionally, when it comes to earnest money, it’s crucial to know that:

There are no set standards, industry-wide formulas, or legal rules about how much earnest money has to be paid.

While earnest money can be essential in competitive markets, it’s possible to buy a house without earnest money. Still, buyers who come to the table with earnest money tend to be taken more seriously than those who don’t.

How Much Earnest Money Is Enough?

The amount buyers should put down for earnest money depends on:

  • The asking price: Typically, earnest money is defined as a percentage of the asking price. Consequently, pricier homes tend to be associated with heftier amounts of earnest money.
  • The market: Seller’s markets tend to command higher amounts for earnest money while less competitive markets may be on the lower end of the earnest money spectrum.
  • The geographic location: With earnest money amounts, in different areas, it’s customary to put down more or less earnest money. This is where an experienced local Realtor can be invaluable, giving buyers and sellers important advice about what to request or offer for earnest money, based on local practices.

In Texas, earnest money is generally somewhere between 1% and 3% of the asking price. Of course, that can vary in certain cities and neighborhoods.

Who Keeps the Earnest Money If the Deal Falls Through?

Earnest money can stay with the seller — or be refunded to the buyer — if the deal doesn’t go through, depending on:

  • The terms of the purchase agreement: Buyers can include contingencies in offers and purchase agreements that cover how the earnest money will be handled in certain situations. For instance, if the buyer included a home inspection contingency in the purchase agreement and the inspection reveals major problems with the home, the buyer may include a term that (s)he gets the earnest money back and the right to back out of the deal.
  • The reason(s) the deal fell through: Was the buyer unable to secure funding? Did the appraisal come back with a value lower than the agreed-upon purchase price? The reason for the deal not going through matters. If it’s because buyers simply decide to walk away from the transaction, they could forfeit the earnest money to the seller (in fact, one intent of earnest money is to prevent buyers from making multiple offers and then walking away from them). Alternatively, if a deal doesn’t happen because the title search turns up some major issue, like an unresolved lien, buyers may get their earnest money back as long as they included terms stating such in the purchase agreement.  

Earnest Money When Buying & Selling a Home in Texas: The Bottom Line

You can use earnest money to your advantage while protecting your interests when you how it works and how to work it into the terms of offers and purchase agreements. It all comes down to what you know, the deal you’re able to work out, and the help you have as you move through the process.

If you’re serious about working out the best deal, it’s best to get experienced help navigating the process. In Austin, Dallas, Houston, San Antonio, and throughout Texas, the Realtors at New Home Gurus are one of the options around.

We can guide you through the process, helping you with earnest money, offers, negotiations, and every aspect of closing. Plus, we’ll split our commission with you at closing.

Homebuyers and sellers who work with New Home Gurus can get back an average of $4,500 to $12,000 at closing.

How Much Cash Can You Get after Closing?

Call (281) 668-8124 or Contact Us to Find Out Now

We are standing by, ready to answer your questions and explain the details of our commission-sharing program.

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