The No. 1 Red Flag Sellers Should Know About Potential Buyers

Even when you're totally ready to make a move, selling a home can be a wild ride. One minute, you're obsessing over whether your yard has enough curb appeal to get people through the door at your open house. The next minute, your real estate agent is calling with the news that you've got a real offer (or two!) to consider. But before you start packing, it's important to do a reality check. Buyer's offers can be complex and layered. As you start to evaluate them, your agent should be carefully guiding you through various contingencies, closing timelines, and earnest money offered. Although it's not always the case, a low earnest money deposit can signal a buyer's hesitation or lack of financial ability to make it to the closing table, making it a bright red flag that should concern you if you're the seller.

From finding a great real estate agent to managing changes to your daily routines, moving is considered one of the most stressful things you'll ever do, and for good reason. There's also a long list of things that have to line up perfectly before you can hand over the keys. Buyers need to secure financing, inspections need to go smoothly, and both sides need to stay committed through the appraisal and closing processes. That's where earnest money comes into play. Essentially, it's a deposit paid by the buyer to demonstrate how serious they are about finalizing the purchase of a home. If they back out of the purchase, they stand to lose the deposit. The amount and terms vary. It's typically placed in an escrow account where it's held until the closing ... or until a buyer backs out.

While an earnest money deposit doesn't have to be an enormous sum, it should be an amount that clearly indicates both commitment and financial ability. When a buyer offers you a low amount of earnest money, for example, a few hundred dollars on a six-figure home, it should raise a red flag. Most buyers put down between 1% and 3% of the overall purchase price, unless they're bidding in a competitive market, when amounts may go even higher. Offering significantly more indicates that a buyer really wants to purchase a home, and is more likely to roll with the punches even if inspections reveal things that need repairing or title searches take longer than expected. But offering only a pittance gives a buyer more room to walk away when a purchase gets complicated, since they won't stand to lose nearly as much.

The terms of any earnest money offered should be clearly spelled out, in writing, including when money will or won't be refunded. It's intended as a good-faith gesture to sellers, who may suffer consequences like relisting expenses, lost momentum and enthusiasm, or other potential buyers assuming something is wrong with the house when a closing doesn't happen. Higher earnest money deposits don't necessarily guarantee a smooth sale, but when you're reviewing offers for your home, the number should be more than an afterthought. Earnest money matters in a competitive market, especially when you're considering multiple offers. It's one of the most important clues about whether a buyer's commitment to purchasing your home is solid or shaky.