Home buyers in Seattle tend to have a lot of questions and concerns when it comes to the earnest money deposit. And as a Seattle-area mortgage company, we try to address as many of these questions as possible, right here on our blog.
Today, we will answer one of the most common questions on this subject. What is the typical earnest money deposit amount in the Seattle area?
Here’s the short version. These deposits usually range from 1% to 3% of the purchase price. Given current home prices in the Seattle area, an earnest money deposit could fall somewhere in the $8,000 to $24,000 range. But a lot depends on current real estate market conditions in the area where you’re planning to buy.
What Is an Earnest Money Deposit?
Earnest money deposits are funds provided by home buyers to show their sincerity and commitment to purchasing a property. It demonstrates “good faith” that the buyer is serious about purchasing the property. These deposits serve as a form of security for the seller and are typically held in an escrow account until the transaction is completed.
In some cases, the earnest money deposit can be refunded if the buyer backs out of the deal. But there are also scenarios where the buyer could lose their deposit, especially if they back out for no reason other than a change of heart.
We will explore those scenarios in a moment. But first, let’s get back to the question at hand…
What’s the Typical Deposit Amount in Seattle?
In Seattle, as in most parts of the country, the earnest money deposit paid by a home buyer typically ranges from 1% to 3% of the purchase price.
However, the amount can vary depending on local market conditions, the seller’s preferences, and other factors. In a competitive real estate market, buyers will sometimes increase the size of their deposits in order to make their offers more attractive to the seller.
As of spring 2023, the median home price in the Seattle area was around $825,000. If we apply the 1% to 3% range mentioned above, this means a typical earnest money deposit in Seattle would fall somewhere between $8,250 and $24,750.
But these are just general guidelines. The truth is, there’s no law or requirement for making an earnest money deposit. It’s more a matter of custom than anything else. As a Seattle-area home buyer, you can choose whether or not you want to make such a deposit, and how much you’re willing to pay.
But you should also consider how it affects your chances of getting the house. If you make an earnest money deposit that’s smaller than average for the Seattle area, the seller might be less inclined to accept your offer. That could cause you to miss out on the property.
On the other hand, if you pay more money than is typical, you risk losing a larger amount if you back out of the deal. Many Seattle home buyers use contract contingencies to protect their deposits in this kind of scenario. So let’s talk about that next.
The Importance of Contract Contingencies
A contract contingency is a clause in a real estate contract that allows the buyer to back out of the deal if certain conditions are not met. Here are some common examples.
- A financing contingency allows the buyer to exit the transaction if they’re unable to obtain mortgage financing necessary to complete the purchase.
- An inspection contingency allows the buyer to back out if the home inspection reveals major problems they are unwilling to take on.
- An appraisal contingency allows the buyer to cancel the deal if the property appraises for less than the purchase price (and the seller is unwilling to reduce it).
These types of contract contingencies can determine whether or not the home buyer’s earnest money deposit is refundable. If the buyer backs out due to a contingency, they are usually entitled to a refund.
However, if they exit the deal for some other reason not specified in the contract, the seller might be entitled to keep the deposit.
Seven Important Takeaways
We’ve covered a lot of important information in this article. So let’s wrap things up by summarizing some of the main points:
- An earnest money deposit is a sum of money that a buyer gives to a seller as a sign of good faith when making an offer on a home.
- The typical earnest money deposit in Seattle, Washington is 1% to 3% of the purchase price. But that’s just a general rule driven by local real estate customs.
- In a competitive real estate market, buyers may be required to make a larger earnest money deposit in order to make their offer more attractive to the seller.
- The money is typically held in escrow by a neutral third party, such as a title company, and applied to the purchase price at closing.
- Whether or not the deposit is refundable will primarily depend on the inclusion and wording of contract contingencies.
- Your real estate agent can advise you on common practices in the market where you are planning to buy a home.
- Home buyers should carefully consider the earnest money deposit amount, because it can affect the seller’s willingness to accept their offers.