When I was purchasing my home, it quickly became apparent that I had to put down a deposit, otherwise known as earnest money.  The deposit is to show that you are serious about buying the home. The amount of deposit required varies from market to market and across the country.  In some places it’s as little as $500.00 or as much as 3% of the purchase price.  As a buyer, I learned that your goal is to put down as little as possible for a variety of reasons, but as a seller you should try to get the largest deposit possible without scaring potential buyer’s away.

As mentioned the deposit is to show how serious a buyer is about buying the property. If the buyer should back out of the contract simply because they don’t want the home anymore, then the deposit goes to the seller to help cover any loss or damages caused by the default.  There are a lot of cases where $500 would be a lot to a buyer and this would prevent them from backing out, but consider the case of purchasing a $500,000 home.  In this case $500 is a very small amount and if the buyer finds a better deal elsewhere they could easily recoup the $500 loss, but if you were to get a 3% deposit they may reconsider losing $15,000.

I have also been in the situation where I was the seller and in an active market where homes are easy to sell it may not be a big deal if a buyer backs out of the contract.  You could potentially have others waiting in the wings, but in a stale market you may not be as lucky.  It may take months or even worse years to find a new buyer and if you already purchased another home you may find yourself with two mortgages to pay.

There is always the option to sue the buyer to go through with the sale, commonly referred to as “specific performance” in the judicial system.  Even if there is without a doubt no legal way for the buyer to break the contract, there is no guarantee that a judge will rule in your favor.  Even if you want to take the chance, it is an expensive, time consuming, and stressful route.

So as a seller, your best guarantee that a buyer will go through with the sale of your home is to make sure to get a sufficient deposit from them to make them think twice before breaking the contract.  Take if from me, I have learned from experience.  I only got $500 for a deposit and the buyer backed out.  After paying my lawyer I end up with nothing and have had no luck selling my home.  I eventually gave up.  I hope you find this advice helpful and never end up in the situation I am in.