Is there a percentage rate to go by or what would you consider reasonable amount for a house in the $600,000 asking price?
earnest money deposits vary widely state to state. I've seen as much as 3% earnest money and as little as $500. YOu should try to put as little down as possible so that the seller doesn't get the chance to tie up your money if you need to back out during the contingency period. Local convention on earnest money deposits will probably dictate how much is common in your area. In my area for a $600,000 home $6,000 is not uncommon.
As a buyer, put down as little as possible.
As a seller, ask for as much as possible.
Cordovamom has it right.
We sold a $100,000 home in a beachy area about 5 yrs ago and the buyer put down $5000. Then they backed out of the deal - 3 days before closing which was in late October. They did not get any of it back.
Twice I have submitted "earnest money", once I have backed out(what a mistake!) and once the seller's agent set up an effective impediment(the Sure Thing Short Sales "scam").
Full return in both cases.
tying up $5 grand and then losing it all.....not so good, IMO, not very fair...
But, within 3 days of closing and suddenly backing out...not good either.
The earnest money is supposed to be substantial enough from a seller's perspective to make a buyer think twice about just walking away without cause. If it's only $500, it's little risk to the buyer and a lot of risk to the seller. Closings in my area are taking about 45-60 days. Why should a seller take his house off the market during this period of time without some assurance that the buyer will follow through? The earnest money is supposed to deter buyers from changing their mind without cause.
From a buyer's perspective, it's all negotiable. The seller may ask for a certain percentage or a large dollar amount, but you can write your offer up any way you feel fit. In a market where there are many competing offers, often the buyer with the bigger earnest money deposit has an edge. In a market where offers are few and far between, you have more wiggle room for negotiating the amount.
In my area for a $600,000 home $6,000 is not uncommon.
You'd risk being laughed out of the house here in Toronto with such a paltry deposit. Try $20,000-$30,000 minimum, unless the Vendor is desperate.
I put down a $50,000 deposit on my last purchase and accepted $75,000 on my sale. I've seen Purchasers walk away from deposits of as much as $250,000 on high-end homes.
Here in NYC where co-ops still dominate the market, 20% down payment is still standard, and half (so 10% of sale price) is due at contract signing. This is regardless of price. My first apartment many moons ago was $180,000 and I put down $18,000 in earnest money.
The article below from the NYTimes discusses families losing deposits in NY metro area. The headline couple lost a $93,000 deposit.
Here is a link that might be useful: NY Times - Up in Smoke
It's great to not live in NYC.
On our house we bought about 9 months ago we put down $1000 earnest on a 500k house.
When selling a $500,000 home in LA a few years ago, several of our contracts included $5,000 earnest money. Not more. When I bought, my realtor encouraged me to put $10,000 to show the seller "I was really interested". I think that my realtor wanted to help get the deal to close. Put down as little as possible (especially in a buyer's market.
What if you find a much better deal of a house 3 or 4 days before close? You want to be able to walk away if it's in your best interest.
When the buyers made a $240,000 offer on our cottage on the river, the earnest money was $2,000. We accepted their offer and closing is on the 15th of October, but I didn't realize the sellers could specify the amount of earnest money.
The REA had the check clipped to the offer, but I don't recall asking how much it was. Maybe the percentage is standard practice around here - SE Pennsylvania.
Worthy, are we all talking about the same thing? On our last home, we gave a $1,000 cheque with the offer to purchase. When we closed the deal, the seller got the full amount (10% down, mortgaged the rest). If I'd backed out of the deal for no good reason, I wouldn't have gotten my $1,000 back. No way anyone would risk $50,000.
I was wondering the same thing as the above poster. $50,000 seems like an excessive amount to risk.
Was this earnest money or a down payment?
earnest money or a down payment?
Those were the deposits, the equivalent of earnest money. (The $50K was on a $1.195K purchase.) As the posts illustrate, the amounts vary.
When I was a broker, we always tried to get deposits at least equivalent to the commission, which was normally due whether the Purchaser closed the transaction or not.
The Times piece shows the importance of having your financing absolutely locked in place before making offers. Here, not only do you risk the deposit but you can be sued for not completing the transaction.
I manage a small portfolio of equity second mortgage investments. Even now that the recession is supposedly over, as a rule you had better have more than 10% equity saved up before signing contracts and plunking down deposits.
Worthy, buying real estate in Toronto must be different from in Ottawa then, certainly such a large amount on making an offer is NOT the case here! (Everyone knows, Toronto is different!) ;-)
"The Times piece shows the importance of having your financing absolutely locked in place before making offers. Here, not only do you risk the deposit but you can be sued for not completing the transaction. "
You cannot get "financing absolutely locked in place" in the USA since the bank is going to order an appraisal and can decline to make the loan (and even withdraw the loan offer) darn near up to the settlement table.
Contracts should contain a decent financing contingency to protect the buyer if they are using bank financing.
The only way a buyer could then mess up and put earnest money at risk would be to not pursue getting financing.
I use very large earnest money deposits to entice sellers to accept lower offers, and rarely have to worry about ANY financing in those cases (or appraisals or much of any other contingency).
I am paying all cash and make completely 'clean' offers with no contingencies beyond the seller delivering clean title.
Toronto is different!)
As witnessed also by the highest land transfer tax rates between the Rio Grande and the North Pole.
Here is a link that might be useful: Ontario Land Transfer Tax Calculator
Yep, nothing is really "absolute." Though I get the impression that US commitments are less certain than pre-approvals here. Still, over the years, I've had banks say "yes" right up to the day before closing, then change their mind based on their appraisal. Or they will pile on additional unreachable conditions, typically a larger downpayment.
I was quite spoiled on my first home purchases in the '70s and '80s. I knew no bank would touch me--no job, no employment income--so I only purchased with VTBs and equity lenders.
Worthy, re: Ontario Land Transfer Tax Calculator... OUCH!! I didn't realize Toronto doubled up the amount.
"Though I get the impression that US commitments are less certain than pre-approvals here. "
They are not actually "commitments" and say so in the fine print.
They are not contracts that guarantee the bank will make a loan, just that the buyer has submitted paperwork and appears to qualify for a loan up to $X, subject to final underwriting (and that often includes another last minute credit check, the proerty appraiing out high enough, and any other condiions the bank can think of to try and mak the loan 'safe' from their point of view).
I can usually obtain such a letter with a phone call to my mortgage broker.
One of his lenders will supply the letter with little trouble.
In my area there is no real earnest money, as much as a deposit at contract, similar, but not a check attached to the offer. Generally 5-10% of the purchase price.
tying up a house for 2 months, especially depending on the timing in the market, the seller's current situation etc, is a big deal. in most situations $5K wouldn't cover the carrying costs for the time wasted.
the whole point of it is to assure the seller that you're going to go through with the transaction. as a seller i'd get no assurance from $2,000. you're not supposed to find a better deal before closing, you're supposed to close on the house, or pay a significant amount for wasting everyone's time.
"...not a check attached to the offer."
Without money attached the offer cannot become a valid contract.
This is just not true, anywhere in the US. Below is the list of items a contract needs to be valid:
1. Legally competent parties
2. Signed and dated agreement.
3. The contract must be about a legal purpose.
4. There must be an exchange of Consideration of legal value, such as money, services, goods...
5. There must be consent between the parties.
I have done deals with no EMD.
To answer the OPs question, IMO, a buyer should give as little as the seller will accept and vice versa. The average, customary rate here in NC is 1% of the sales price.
"4. There must be an exchange of Consideration of legal value, such as money, services, goods... "
So what consideration is provided for executing the sales agreement?
Without money attached you have provided nothing of value.
Contract law 101.
Even a deed of conveyance contains words about dollars (receipt of which is acknowledged in the deed).
The Poster is asking about Earnest Money Deposit. The "Consideration" needed, in order to have a valid contract has nothing to do with the deposit. Secondly, Consideration does not even need to be money. It could be anything of legal value... for example, some deals are nothing more than an exchange of homes between the parties.
The Consideration does not have to be an exchange of customary money.
Consideration need not be money.
Here is a link that might be useful: Consideration
"The Poster is asking about Earnest Money Deposit. The "Consideration" needed, in order to have a valid contract has nothing to do with the deposit."
The earnest money deposit IS the consideration to make the sales contract valid.
Please describe what other consideration you are offering.
Your word you will complete the sale?
You promise to purchase is not "consideration" and the 'sales contract' IS a contract requiring consideration.
The earnest money IS the usual 'consideration' and lacking it you better have something else to point to that has value to make the sales contract valid.
The sales contract is a contract to move forward with the transfer of ownership of the property, NOT the actual transfer of ownership that occurs with execution of a deed of transfer.
Saying you will assume a debt is not consideration for purposes of the sales contract.
It is consideration for transfer of title (though in most places a nominal sum of money is called out in the deed of transfer/conveyance).