“What’s the earnest money deposit formula in Virginia?” this Vienna home buyer studiously asked.
This really isn’t an uncommon question because most buyers are reading websites written by mortgage lenders, product marketing, or media companies. Their professional content people (we used to call them writers) write to fit this topic into digestible chunks that people can read on iPhones while crossing a busy street in DC.
Essentially, professional content creators oversimplify every strategic piece of the typical negotiation process. If you ask me, they can make anything sound like it’s not a big deal because, after all, it isn’t their $10,000!
You need to know… there’s much more to it.
Earnest Money Deposit amounts aren’t formula based
Deposit amounts need to be strategic, and not considered a secondary item when you are planning an offer.
This year, specifically, I have seen a lot of inbound offers from agents which have allowed me to collect research data on what consumers are hearing from their agents, the Web, Dad, Uncle Ted, or watching The Property Brothers™.
Home buyers really need to understand that buying someone’s house isn’t like buying a car. Often there is an emotional connection to a home or other subtle influencing factors.
Showing Strength, not just 1%
A Deposit will be credited toward your down payment at the Settlement.
In Northern Virginia, Deposits are put into an Escrow Account within five days of Ratification (agreement).
So what you need to decide is how much you want the house? Is it the one?
If you have decided that it’s the one, then it is critical to make a strong offer since there may be another competitive offer on the table too.
Showing your financial strength is critical, and your Deposit amount needs to reflect that strength.
“Don’t they have any money?”
There were offers that I saw this year when eager home buyers, in multiple-offer situations, attached Deposit checks that were 1% of the sales price.
Needless to say, 1% is a half-baked strategy, and in my follow-up calls with desperate agents, they did not get the concept that allowing a client who includes a 1% Deposit when their offer has a 20% Downpayment offer is a poor strategy.
The earnest money deposit needs to be competitive… or at least impressive.
I have sat with sellers who have had to decide between multiple offers that were almost identical.
The Deposit amounts were:
Which offer do you think really wants to make the deal work? When you prepare an offer to buy a home, it essential to envision how it will be received and interpreted by the seller.
Pro-tip from the field
Your Deposit is only a small piece when submitting an offer, so it is essential that you have a global view of the elements.
A large Deposit can demonstrate, especially in a competitive market, that you are willing to put your money where your mouth is and complete the sale.
Talk with your real estate agent about the protections of the escrow account as outlined in the sales contract, and who the escrow agent holding the money will be.