There is one answer to the two most often asked questions by home buyers and sellers. The questions are: Will I get the earnest money back? Can I keep the earnest money? The answer: Maybe. 

This article is not an attempt to explain Wisconsin Earnest Money Law. Google will give you 2.99 million resources related to Wisconsin law. I am not qualified to say more than provide a general summary of the terms in a purchase agreement, or refer you to a real estate attorney. I intend to explain why earnest money matters and how to use earnest money as a difference-making asset in your offer to purchase. 

Before the market went crazy and became this hyper seller’s market we’ve grown accustomed to, earnest money mainly was inconsequential in negotiations. The common practice was to offer $1,000 of earnest money for most purchase agreements, or 1.0% of the price. A $500,000 sale might include $1,000 to $2,500 of earnest money. Relatively small amounts of money held in a trust account are hardly worth the efforts to fight over. Buyers and sellers usually have more to gain by releasing the money, splitting the funds, and moving on. Owners have no leverage to demand higher earnest money deposits in average markets. But this is no average market.

The Power of Big Earnest Money

Owners expect to see exceptional prices and safe terms in offers today. A strategy employed to entice a seller to accept one offer over the rest (while the buyer positions to renegotiate later) still catches some agents and their seller clients off guard. The earnest money is a good indicator of a buyer’s intention to entice a seller into accepting an offer while withholding the leverage to renegotiate later. 

Pay attention to the downpayment, earnest money, purchase price, and appraisal contingencies.

A buyer’s commitment to close on the terms offered might be more significant when the earnest money is an amount that would hurt to lose. A typical scenario: The asking price is $500,000. 

Buyer A: $560,000. Downpayment: 20%. Earnest money $2,500. 

Buyer B: $550,000. Downpayment 10%. Earnest money: $30,000

Buyer B might be the more committed buyer. Thirty thousand dollars is a large chunk of their cash available for a downpayment. The $2,500 is real money, but it’s too little to keep a person from walking away.

When you can’t outspend the competition, use what you have to show the seller that you’re committed. A lot of people can get preapproved for purchasing. We’re looking for a buyer who will commit to close on the terms as stated in the offer. 

Patrick and I help our buyer clients use the offer to their advantage. We write offers owners are eager to accept for our buyer clients, even when they can’t outbid the competition on price. On the other side, we keep our seller clients safe from taking offers with terms they may soon regret. Before committing to any real estate firm as your agent, talk to us about how having us on your side can be the wisest decision you can make.