Winning at Multiple Offers #2: Leveraging Your Earnest Money

We are expecting another strong market in 2021 here in Minnesota.  Unfortunately this means more bidding wars and multiple offers for buyers.

There are ways you can set your offer apart and bring it to the top of the pile.  Today I want to highlight the importance of leveraging your earnest money. 

Earnest Money

Earnest money is a deposit you put down on a home when your offer is accepted.  In the Twin Cities area right now 1% of the sale price is most common, though it can be higher or lower.  

Should you get cold feet, back out of the sale, or not close on the home you would forfeit the earnest money.

The Problem

Most buyers put into their offer a number of contingencies:

  • Inspection Contingency: a period of time, generally 5-10 days, in which a buyer hires an inspector to evaluate the home.  Usually a buyer puts into their offer a contingency, allowing the buyer to cancel the sale during this period and get their earnest money back.
  • Financing: if you are getting a mortgage, this will be a requirement.  Should the lender come in 20 days into the transaction and say, "we can't issue you a loan," then the deal would be cancelled.  Most buyers put in their offer that the earnest money would be returned to the buyer.
  • Sale of Buyers Property - this is when someone has to sell their first home before buying a second.  
  • Appraisal - a buyer may want the home to appraise at the offer / sale price.

Most buyers will put into their offer these contingencies AND the earnest money would be returned to the buyer.

The Solution: Be More Aggressive

If you are putting down $2,500 in earnest money, my suggestion is that you strongly consider making some or all of it non-refundable.  About 80% of offers right now don't do this.  Should you do so, you'll immediately make your offer stand out from others.

Perhaps you don't need to risk all $2,500, but by just making even $1,000 of your earnest money immediately non-refundable you will stand out from other buyers.  

Think creatively about what you can offer to the seller!