This is a really great question. I think the more you put down, the better.
When you make an offer I assume you want to negotiate the best deal possible.
With that assumption, let’s look at why more earnest money (EM) can help you. Your EM shows how serious you are and shows that you have some money. This, along with good deadlines, can help you get a better price as a buyer. If you are putting down 3% or more for a down payment, there really is no reason for you not to put a large EM.
Your EM goes towards your down payment or towards your closing cost if you are doing 100% financing. Your EM is protected with the basic contingencies of the Standard Board Of Realtors Real Estate Purchase Contract, or REPC (pronounced rep-see).
The basic contingencies are appraisal, inspection and loan. They all have deadlines and you can cancel the contract within those guidelines WITH WRITTEN NOTICE. If the contract is canceled within the parameters of the contract then the EM is returned to the buyer.
Another reason is called liquidated damages. The default clause of the REPC Paragraph #16:
DEFAULT. If Seller defaults, Buyer may elect one of the following remedies: (a) cancel the REPC, and in addition to the return of the Earnest Money Deposit, or Deposits, if applicable, Buyer may elect to accept from Seller, as liquidated damages, a sum equal to the Earnest Money Deposit, or Deposits, if applicable; or (b) maintain the Earnest Money Deposit, or Deposits, if applicable, in trust and sue Seller to specifically enforce the REPC; or (c) accept a return of the Earnest Money Deposit, or Deposits, if applicable, and pursue any other remedies available at law. If Buyer elects to accept liquidated damages, Seller agrees to pay the liquidated damages to Buyer upon demand.
So a large EM benefits you as a buyer all the way through. As long as you monitor your dates and everyone in the transaction stays on task and on time, your money is not at risk.
In summary, a larger EM along with good deadlines can help you negotiate a better price and if the seller defaults you awarded a larger damage settlement.
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