“How much should my earnest money deposit be?” This has been the question put to me on three occasions this week. My easy answer is, “It depends.”

Traditionally, the tendering of earnest money as a token of sincerity on the part of the home buyer has long been practiced. Although the mere payment of some amount of money is not an absolute requirement to validate an offer, the practice has significant psychological influence. In the real estate business, the expression is often used, “The larger the deposit, the more secure the transaction.” This is not altogether true.

If the offer is contingent upon certain specific issues and the wording provides that the buyer is not obligated to consummate the transaction unless the issues are cleared or performed, the earnest money will be returned to the buyer regardless of the amount of money or size of the deposit.

For example, if the purchase is subject to the sale of the buyer’s residence or subject to the buyer being approved for specific financing, then if the condition is not satisfied by the specified date the buyer is released from proceeding and the deposit is returned.

Some states require — or at least ask for — a specific amount or percentage of the purchase price as a deposit. The practice in our area has neither mandated such a procedure nor established such a precedence or custom. Not too many years ago, especially when prices were much lower than they are now, it was quite common to use $100 or $500 as a deposit. Today, a buyer may put $1,000 as an earnest money deposit for a purchase of $100,000 or so. Twenty-five hundred dollars to $5,000 may be required on a price of $200,000 and up.

Who says how much the deposit should be? Generally, sellers will specify the amount necessary for them to feel comfortable that the transaction is secured. But as mentioned above, a contingent offer may negate the feeling of security even with a large sum.

Sellers may accept a low earnest money deposit with the requirement that the amount be increased at a specified time, or upon some occurrence or the removal of certain conditions. There may be times when the money becomes non-refundable to the buyer and is paid or payable to the seller.

Investors often try to work with small earnest money deposits. They may often have multiple offers working at the same time, consequently they do not want a lot of money advanced from their savings while trying to get the offer(s) negotiated.

My final answer for this question of “How much should my earnest money be?” is that we need to follow the “Goldilocks” principle: Not too small and not too large (depending upon the respective party’s position), but just right! The right amount is the one to which both parties agree and that seems sufficient according to their ability and willingness to contract.

St. George Realtor Jim Coleman writes a weekly real estate issues column . He is an associate broker and partner/owner of ERA Brokers Consolidated. He specializes in residential, investment and commercial real estate. Questions or column ideas can be directed to him via e-mail at jim@relorep.com. Call (435) 674-0600 or write Jim Coleman, 201 E. St. George Blvd., St. George, UT 84770.