I don't understand the "more earnest money=lower purchase price".

Seller's net (bottom line) is the best determinant of whether a contract is accepted, although putting up substantial earnest money may convince a seller to look more closely at a low offer rather than rejecting it.

Have you received a response yet?

By earnest money, do you mean down payment? (i.e. your total in cash portion of the sale price, with the rest coming from a mortgage) (because to me, earnest money is what you put down after the offer has been accepted but before inspections & such, and there is some risk of losing that if the deal goes bad because of lack of action on your part).
In a way, a larger down payment means the cost of the house is less to you ... because you pay less interest on the mortgage. But it has no effect on the seller.
Unless there is some difference when it is a builder you're buying from, that I am unaware of.

No, I meant earnest money, not a down payment. Basically the build is going to take 4 months, so if we provide more earnest money, they don't have to pay for as much of the build out-of-pocket.

Anyway, we negotiated with the builder and have signed a purchase agreement! :) Now to sell our currently home. (In our market, it shouldn't be a problem so long as we're realistic about our price.)

It sounds like you gave this builder a deposit;
he couldn't use earnest money to pay for building the house.

Just out of curiosity, did you have your own Realtor, or is the real estate agent you refer to working for the builder?

I hope this builder doesn't go belly up. Happens frequently today. I hope your deposit is in escrow and not with the builder.
Good luck with your purchase.