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/100
- 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.
To calculate earnest money, multiply the home price by the percentage of the home to be paid in earnest, then divide by 100.
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: