EARNEST MONEY

Let’s talk about Earnest Money (EM)—how much is fair, when you should pay it, and when you actually shouldn’t.

First, what is it?

EM is a buyer’s way of saying, “I’m serious.” It’s a good-faith payment—proof that the buyer has skin in the game. Sellers usually require it to “reserve” the property, which is why it often functions like a reservation fee.

So, how much should you pay?

In corporate settings, EM is typically pegged at 10% of the total deal. But when it comes to private individuals, the rules aren’t as rigid.

My general rule?

It should be big enough to hurt if the buyer wishes to back out—but small enough that, if things go south, no one goes bankrupt.

Personally, I prefer to cap EM at P500K or less. Why? Because in the rare (but not impossible) event that the deal collapses and the seller refuses to return the money, I’d rather be able to refund the buyer out of my own pocket than see my name dragged through the mud. If it's a big transaction, then probably P1 Mn.

What about the risk of a second buyer swooping in?

Some might argue that small EM leaves room for another buyer offering a higher price, prompting the seller to cancel the first deal. Sure, in theory the seller would need to return double the EM as a penalty.

But let’s be honest:

Most sellers will never sign a document agreeing to penalties if the deal falls through. They’ll cross it out and push back.

So instead of relying on theoretical penalties, I’d rather manage risk by keeping the EM low.

Are there times when you shouldn’t pay EM at all?

Yes—absolutely. I also know of some sellers who refuse to accept any.

Here are a few examples:

1.⁠ ⁠When the buyer’s bank loan isn’t approved yet.

Until the financing is locked in, there’s no point putting money on the line.

2.⁠ ⁠When there are complications in remitting funds.

If the buyer is sending money from overseas and the transfer could be flagged by AMLA, better to wait. No one wants frozen funds in the middle of a deal.

At the end of the day, I don’t care about squeezing a deal fast. I care about making sure no one walks away feeling burned. That’s how you keep reputations clean and clients coming back.