Earnest money is the amount you’re willing to put up front to show that you’re serious about making an offer. So if I make a $300,000 offer on a condo, and another person makes an offer of $300,000, the seller might look at earnest money to see who is more serious. If one person put $500 down for earnest money, and another put $20,000, it would appear to the seller that one person is more prepared and more serious than the other.
When is earnest money due? If I make an offer on a property and it gets accepted on a Monday, I have to deposit the funds at the escrow office by the end of business day Wednesday (2 business days).
This also means you have to have the funds readily available. Maybe the person who makes an offer with $500 in earnest money only has that much in their checking account. So the seller may have the impression that they’re not prepared, even if that person has plenty of funds tucked away in an online bank account that will take a week to transfer. You really don’t know the circumstances, all you know is what’s written on the offer.
Earnest money is also the amount the seller can keep if you default. So, for example, if I make an offer for $300,000 and put $20,000 down in earnest money. And then I decide the day before closing that I don’t want the property anymore after all other contingencies have expired, the seller can’t sue me for $300,000. They can only keep my earnest money of $20,000.