Earnest Money Calculator

Formula

The formula to calculate the earnest money is:

\[ \text{EM} = \frac{\text{HP} \times \text{E}}{100} \]

Where:

$ \text{EM} $ is the earnest money in dollars.
$ \text{HP} $ is the home price in dollars.
$ \text{E} $ is the percentage of the home price expected to be paid in earnest.

What is Earnest Money?

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.

Example Calculation

Consider an example where:

Home Price: $300,000
Percentage of Home Price: 2%

Using the formula to calculate the earnest money:

\[ \text{EM} = \frac{300,000 \times 2}{100} = 6,000 \]

This means that the earnest money for this example is $6,000.