What is Acceptable Earnest Money in Arizona?

In general, the larger the amount of earnest money, the more serious the seller will consider your offer. That is, the more your earnest money, the more attractive your offer.

Different areas of the country have different earnest money traditions. For Arizona residential resale real estate, I have found that an earnest money amount equivalent to around 1% of the price you are offering for the home is usually acceptable to sellers. (It’s more for luxury homes.)

In my opinion, an unusually large amount of earnest money strengthens your offer a bit and an unusually small amount of earnest money weakens your offer a lot.

Don’t Low Ball the Earnest Money

Putting down a small amount of earnest money will often raise red flags in the mind of the seller.

  • The seller may think you aren’t very serious about buying the house and become less flexible in price negotiations.
  • The seller may look at everything in your offer suspiciously if you come in with a suspiciously low amount of earnest money.
  • The seller may worry that you are cash poor and won’t be able to really buy the home.

Putting down an appropriate amount of earnest money is usually a no cost way to strengthen your offer.

What is Earnest Money?

Earnest money is often a personal check from you, the buyer, made out to the escrow company.

Before I submit your offer to the seller, you’ll give me the earnest money check (made out to the escrow company) to hold as stated in your offer.

If it turns out an agreement cannot be reached with the seller, you’ll tell me to return it to you or to destroy the earnest money check.

If, however, an agreement is reached with the seller, I’ll deliver your earnest money check along with the accepted offer (now a “contract” or “agreement”) to the escrow company to “open escrow.”

The escrow company will usually “cash” your earnest money check within 24 hours and deposit the money into your new escrow account.

Another way to deposit the earnest money which is becoming more popular is to skip the paper check altogether and simply write into the offer/contract that the buyer will deposit the earnest money into escrow within X days (often 2 or 3) of contract acceptance. After a written agreement is reached between the buyer and the seller, the buyer’s agent will take the signed, accepted contract (without an earnest money check) to the title company to open escrow. The escrow officer will open escrow and call the buyer with the wiring instructions so the buyer can, as per the contract, wire the earnest money directly into the escrow account.

At the close of escrow, buyers usually want their earnest money to go toward the purchase of the home.

Can the Buyer Lose the Earnest Money?

Yes, the buyer can lose their earnest money if the buyer breaches the contract.

I, however, have never had a buyer client lose their earnest money. Similarly, I’ve never had a seller client keep a buyer’s earnest money. In my opinion, something has to go terribly wrong for the buyer to lose their earnest money.

An important reason to hire a real estate agent is to help ensure that you don’t accidentally screw up and lose your earnest money.

Call me if you have any questions about earnest money when buying an Arizona home.

I would love to hear what you think about these Tips. Are they useful to you? How can I improve them?

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