Earnest Money in Real Estate: What Every Buyer Needs to Know
When you make an offer on a home, earnest money is a good faith deposit that shows the seller you’re serious. Think of it as a promise—you’re putting “skin in the game” so the seller feels confident taking their property off the market.
How Earnest Money Works
Typically ranges from 1–2% of the purchase price (up to 5–10% in hot markets).
Paid by check or wire transfer into an escrow or trust account.
At closing, it’s applied to your down payment and closing costs.
If the deal falls apart for reasons in the contract, you can usually get it back.
When You Can Get Earnest Money Back
Buyers often worry about losing their deposit. The good news? Contingencies protect you. You can reclaim your earnest money if:
The home inspection reveals major issues.
The appraisal comes in lower than the sale price.
Financing falls through despite your efforts.
You can’t sell your current home (if that’s in the contract).
These conditions give you an exit strategy without penalty.
When You Might Lose Earnest Money
If you back out for reasons not listed in the contract—like getting cold feet or finding another house—the seller usually keeps the deposit. This protects sellers from wasting time when buyers walk away.
Earnest Money vs. Down Payment
While they’re related, they’re not the same:
Earnest money = your upfront commitment at offer stage.
Down payment = the larger amount you pay at closing (3–20% of the purchase price).
Your earnest money is credited toward your down payment once the deal closes.
How Buyers Can Protect Their Earnest Money
Include contingencies for financing, inspections, and appraisal.
Meet all deadlines listed in your contract.
Use a trusted escrow account with a reputable broker, attorney, or title company.
Never transfer money directly to a seller.
Confirm wire instructions to avoid fraud.
Why Earnest Money Matters for Buyers
For buyers, earnest money is more than a deposit—it’s leverage. A fair deposit helps you stand out in competitive markets while giving you time to secure financing, complete inspections, and confirm the home is right for you. With the right protections, it’s a smart way to move forward confidently.
