Enter the price of the home and the percentage expected to be paid in earnest to calculate the earnest amount.
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Earnest Money Formula
The following formula is used to calculate an earnest money amount for a home sale.
EM = HP * E%
- Where EM is the earnest money ($)
- HP is the home price ($)
- E% is the percentage of the home price expected to be paid in earnest.
Earnest Money Definition
Earnest money is a monetary amount deposited prior to the sale of a home to represent a buyer’s good faith to move forward with the transaction.
The average percentage a buyer is expected to pay is typically between 1 and 2 % of the home price. This can reach higher levels of 5-10% in extremely hot markets, for example, what we are seeing in the year 2021.
How to calcualte Earnest Money?
Example Problem #1:
First, determine the home price. For this example, The home is worth $500,000.00.
Next, determine the earnest percentage that needs to be deposited. This market is hot, so the percentage has reach 4% of the sale price.
Finally, calculate the earnest money using the formula above:
EM = HP * E%
Example Problem #2:
In this next example, the home price is much higher at $800,000.00. However, the earnest percentage is only 1.5% because it is located in a slower market area.
Using the formula as we did above: