There are some great tools for webmasters to check what web surfers are really searching for. With the busy spring season for real estate ahead of us, it seems like buyers and sellers are wondering what constitutes a low earnest money amount or if there is an average for Chicago Illinois.
Because Chicago, the suburbs and Cook County are so large there are really no earnest money rules. The southwest Chicago suburbs still get contracts with earnest money as low as $1,000. This is usually for purchases in the $100,000's. Once a buyer purchases a more expensive property, the expected earnest money is higher.
In Chicago's downtown and surrounding area I was surprised to find out that the average Chicago earnest money percent was around ten percent of the contract price. You can see it really varies and there is no actual rule or law governing this.
I see more and more contracts with 100% financing. These buyers don't have to come up with a down payment. Many of these purchasers ask for seller concessions at closing to cover their closing costs. Expecting these kinds of buyers to come up with more earnest money than they'll need to close on the property doesn't make sense.
Buyers and sellers really don't understand what earnest money is. Earnest money is the buyer's money, or deposit in good faith of a contract acceptance. The money is put towards the buyer's closing costs/down payment. The earnest money is not written out to the seller, but to the listing brokerage, who places it in a special account just for earnest money. The check is deposited. Most brokerages accept a personal check but some require certified funds.
Some sellers think that if the buyer doesn't get their mortgage they (the sellers) get to keep the earnest money. This is not true. In fact, even if the buyers walk away they have to sign off on the earnest money in order for the brokerage to release it. If the buyer does not sign off then the seller has the option of giving the earnest money back to the buyer and moving on or taking the buyer to court. If the seller and buyer can't agree then the only way for the broker to release earnest money funds is by a court order.
In 24 years in the business I've only had one buyer that released the earnest money. It was split between the brokerage and the seller. The buyer admitted that he found something else and changed his mind. Most buyers can find a loophole with their mortgage company or their attorney to get the money returned.
So what good is it? It still makes the buyer write a check as a deposit towards the purchase. The higher the earnest money, the less chance a buyer will want to gamble with it and the more serious the buyer appears. This can be powerful with multiple offers on a property. I've seen similar contracts go to the buyer with the highest earnest money deposit.
With the upcoming busy market be sure to read through my Home Buyer Faq's and the questions about average earnest money expected.