Earnest Money: What Is It?
When you make an offer on a home in the U.S., you’ll usually include earnest money—a good-faith deposit that shows the seller you intend to complete the purchase. If you close, it’s credited toward your costs. If the deal falls apart, the purchase contract determines whether the funds are returned or forfeited.
They aren’t the same. Earnest money is deposited shortly after offer acceptance and sits in escrow. Down payment is paid at closing and becomes part of the purchase price. On your closing disclosure, earnest money shows up as a credit—you’re not paying twice.
There’s no universal rule. A practical range is ~1%–3% of the price. You might go higher to stand out in a hot, multiple-offer scenario—or lower in a slower segment. Consider:
Pro tip: In new construction, builders sometimes set a fixed deposit or higher percentage—refund rules can differ. Read the builder addenda carefully.
By custom and state law, earnest money is held by a neutral third party—often a title/escrow company, a brokerage trust account, or an attorney’s escrow account. These custodians follow strict accounting and release procedures. Funds are not released on a handshake; they’re disbursed according to the contract.
Security first: Always verify wiring instructions with the holder using a known, independently sourced phone number. Wire fraud is real; use call-backs and multi-step verification.
If the transaction closes, your earnest money is applied to your down payment and/or closing costs on the final settlement statement.
Refunds depend on your contract and your timing. If a contingency isn’t satisfied and you deliver written notice by the deadline, you can typically terminate and receive a refund. Common protections include:
Hard truth: Deadlines are not suggestions. Miss one, and your leverage—and sometimes your deposit—can evaporate.
If a buyer breaches the contract—for example, fails to deliver the deposit on time, waives protections and later walks, or misses a critical notice deadline—the seller may be entitled to the deposit as liquidated damages (state forms vary). This is why we treat your contract calendar like mission-critical operations.
State forms use different terms for the “effective date” and deposit timing (e.g., “business days after acceptance”). Some states also use additional fees (e.g., “option” or “due diligence” fees) that may be non-refundable and separate from earnest money. Your agent will guide local norms; we coordinate the cash flow and deadlines so everything lines up.
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