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Buyers always ask how much of an earnest money deposit is required. Typically, there is no set requirement. In California, contracts must contain consideration to be valid, but that amount can be as little as one dollar. Laws in your state may be different. Bear in mind, however, that the amount of your earnest money deposit depends primarily on your marketplace and local custom. What is an Earnest Money Deposit? Its a good faith deposit but not to be confused with a down payment. When buyers execute a purchase contract, the contract specifies how much money the buyer is initially putting up to secure the contract, to show good faith, and how much money all together will be deposited as a down payment. The balance is generally financed as a mortgage or a combination of mortgages. An earnest money deposit says to the seller: Yes, I am serious enough about buying your house that Im willing to put my money where my mouth is. So, How Much is Enough? Because there is no set amount, it varies from market to market and across the country. Where I work in California, deposits are generally 1 to 3 percent of the sales price. Buyers here do not often put down more than 3% since most sign a liquidated damages clause that limits the seller to 3% of the purchase price as damages in the event of a default. But its not unusual for a buyer purchasing a $300,000 home to put down $1,000, especially if the buyer is obtaining 100% financing. In those scenarios, the deposit is most often refunded to the buyer and subsequently used as a credit toward closing costs because the financing makes up the entire purchase price. If its a sellers market, with many buyers fighting over limited inventory, it makes logical sense for the buyer to put down a much larger earnest money deposit to entice the seller to accept the offer. In buyers markets, a larger earnest money deposit might entice a seller to accept a much lower purchase price. So you see, it all depends. Be Careful to Whom You Give Your