What is the Amount of Earnest Money Deposit in Sacramento?

When you’re ready to make an offer, you will need to consider the amount of earnest money deposit required for a purchase contract. Although the amount of earnest money deposit is not specified, and could be just a $1.00 or even simply “love and affection,” consideration is part of the essential elements of a purchase contract. Because back in Real Estate 101, we had the essential elements of a purchase contract drilled into our heads. Do you know what those elements are? I’ll tell you, in case you have forgotten.

Amount of Earnest Money Deposit and

Essential Elements of a Purchase Contract

• A legal purpose
• Competent parties
• Offer and Acceptance
• Consideration
• Validation

While there is no minimum amount required, most buyer’s agents try to keep the earnest money deposit under 3% of the sales price. The reason for that is in the event of default, the seller might be entitled to liquidated damages, and that amount is limited to 3% of the sales price. Any amounts deposited over that sum would be returned to the buyer. Unless, of course, the seller refused to release the earnest money, and then there is a penalty that can be imposed for refusing to release. To get that penalty, though, and to get the rest of the money released, well, it could involve an expensive court case or Small Claims.

Rather than fight that battle, it’s safer to limit the earnest money deposit to less than 3%. But how low can you go is what some buyers want to know. Now, considering how the seller will interpret the buyer’s eagerness and willingness to buy the home, it might be wise to put your money where your mouth is. If the amount of an earnest money deposit is $1,000, that doesn’t show the buyer is very serious, even if the buyer is. Especially if the sales price is $400,000. 3% of that is $12,000.

Another twist that plays into this, which was mentioned at one of our office meetings at Lyon Real Estate, is some listing agents are getting sued if the buyer later bails and the deposit was puny, inadequate. I can see that. A judge might question whether the agent was protecting her seller by not asking for a larger earnest money deposit.

From a Sacramento listing agent’s point of view, 1% of the sales price is the bare minimum, but I really prefer 2% to 3% for my sellers. It shows the buyer is genuine and committed. All buyers, unless otherwise agreed to in writing, have a contingency period in the contract that provides for cancellation and a release of the earnest money deposit.