Enter the price of the home and the percentage expected to be paid in earnest to calculate the earnest amount.

## 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%

= \$500,000*.04

= 20,000.

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:

EM= HP*E%

= \$800,000*.015

= \$12,000.00