What Is Earnest Money?

Think about this: You’re selling something important, like a car. A buyer says they want it, but then they walk away the next day. That’s frustrating, right?

It’s the same with buying a house. When a buyer is ready to make an offer, they include earnest money to show they are serious. It makes the seller feel more confident. If the seller accepts the offer, they can take the home off the market and start getting ready for closing.

This earnest money deposit is usually paid right after the purchase contract is signed. The buyer and seller both agree to the terms, and the buyer shows their commitment with money up front.

The amount of earnest money depends on a few things. It’s often between 1% and 3% of the purchase price. So, if the house costs $300,000, the earnest money might be $3,000 to $9,000.

Your real estate agent will help you decide how much to offer. In a hot housing market, offering more money in real estate deals might help your offer stand out. Sellers want to know you mean business!

You don’t give the money directly to the seller. Instead, it is held in an escrow — a safe place managed by a neutral third party, like a title company. This is called an escrow account.

The money stays there until closing day. That means it doesn’t go to anyone until all the steps of the sale are finished.

What happens to earnest money at closing?

Once all the boxes are checked — like the home inspection, the loan is approved, and the closing date arrives — the earnest money at closing is usually applied to your costs. It can help cover your closing costs or go toward your down payment. So, you’re not losing the money — it’s just used later in the process.

Can you get earnest money back?

Yes, sometimes earnest money is refundable. But there are rules.

Most purchase contracts have conditions, called “contingencies.” These help protect the buyer. For example, you might have a home inspection contingency. If the inspection shows serious problems and you decide not to buy the house, you may be able to get your earnest money deposit back.

Other common contingencies include:

• Financing contingency – If you can’t get the mortgage loan, you can walk away with your money.
• Appraisal contingency – If the home appraises for less than the sale price, you might back out and get a refund.

If you follow the rules of the contract, your earnest money is refundable. But if you simply change your mind or break the contract without a reason, you may lose the deposit.

What if the seller backs out?

If the seller accepts your offer and then changes their mind, you may be able to get your earnest money deposit back. This is something your real estate agent and title company can help with. Sometimes the buyer can even take legal steps to protect their rights if the seller breaks the contract.

For the buyer:

• It shows you’re serious.
• It helps your offer stand out.
• It gives you a chance to lock in the deal.

For the seller:

• It gives peace of mind that the buyer won’t walk away for no reason.
• It allows them to move forward with plans to sell.

That’s why earnest money in real estate is such a big part of the homebuying process.

1. Talk to your real estate agent

   They’ll guide you on how much earnest money to offer based on the home, the market, and other offers.

2. Make sure the contract is clear

   Know exactly when you can get your earnest money refundable and when you can’t.

3. Use a trusted title company or attorney

   Always make sure your earnest money deposit is held in an escrow by a licensed professional. Never give money directly to the seller.

4. Stay on top of deadlines

   Missing deadlines for financing, inspections, or paperwork can put your earnest money at risk.

Earnest money might seem like just another part of the homebuying puzzle, but it’s an important one. It helps keep both the buyer and seller honest and committed. When the seller accepts your offer, you both start working toward a shared goal — closing the deal.

By offering earnest money, you help the seller feel safe taking the home off the market. And if all goes well, your deposit will become part of your closing costs or down payment.

So next time someone asks, “What is earnest money?” you’ll know the answer: It’s your way of saying, “I’m serious — and I’m ready to buy this home.”