The purpose of the deposit is to assure the seller that you are serious in your offer. That's why it is sometimes called earnest money. Once the money is put up, it's at risk to you. If you back out of the deal, you stand to lose the deposit. Therefore, you want to offer enough to satisfy the seller that you are serious, yet not offer so much you could suffer a serious financial loss if the deal doesn't go through.

 

The more you put up as a deposit, the more serious the seller is likely to think you are. However, some buyers feel they can make up for a weak offer with a big deposit. They hope to impress the sellers with a large amount of cash.

 

These days, however, sellers are rarely so impressed. The truth is that the deposit money is not at as much risk as it used to be. In most states you, as a buyer, often have weeks to conduct inspections and approve disclosures. During this time you can usually back out of the deal with no loss of deposit.

 

Even after having signed off on all reports and disclo­sures, savvy buyers often leave contingencies that offer them a back door out without penalty. In some cases, the only way the seller can even­tually get your money is to go to court and sue for it—not something most sellers will do while they are trying to sell their home. (Many contracts now offer a "liquidated damages" clause that makes it easier for the seller to claim your deposit, but harder to sue you.)

 

That doesn't mean you can't lose your deposit if you back out of the deal—you can. It's just that savvy sellers know it's not a slam dunk for them to get it and, hence, are not so impressed with it.

 

My own suggestion is that you put up between $5000 and $10,000 depending on the size of the deal. Most sell­ers accept that this is enough to hold the property for the month or so it takes to close and are okay with it. If the deposit is an issue with the sellers, they will usually come back asking you to increase the amount, usually after all the disclosure and inspection contingencies have been removed. If you still want the property in Hawaii, you can increase your deposit at that time.