Earnest Money Deposits
When a buyer makes an offer, they usually include an earnest money deposit — a sum of money that signals they are serious about buying the home. It is sometimes called a good-faith deposit, and it plays a real role in how offers are perceived and how deals are protected. This guide explains what it is, how much is typical, where it goes, and the crucial question of when you get it back.
The short version
- Earnest money is a good-faith deposit that shows a buyer is serious.
- It is commonly around 1 percent to 3 percent of the price, though it varies.
- It is held by a neutral third party, not paid directly to the seller.
- At closing it is credited toward your down payment and costs.
- Whether you get it back if the deal falls through depends on your contingencies.
What earnest money is for
Earnest money reassures the seller that you intend to follow through. When a seller accepts your offer, they take the home off the market and stop entertaining other buyers — a real cost if you walk away for no good reason. Your deposit is a signal that you have skin in the game. A larger, credible deposit can also make your offer stand out, especially in a competitive market where the seller is weighing which buyer is most likely to close.
How much is typical?
There is no fixed amount; it is negotiable and varies by market and price point. A common range is roughly 1 percent to 3 percent of the purchase price, though hotter markets sometimes see more and cooler ones less. On a $350,000 home, a 2 percent deposit would be $7,000. What matters is that the amount is meaningful enough to signal seriousness without putting more of your cash at risk than you are comfortable with.
| Price | 1 percent | 3 percent |
|---|---|---|
| $300,000 | $3,000 | $9,000 |
| $450,000 | $4,500 | $13,500 |
| $600,000 | $6,000 | $18,000 |
Where the money goes
Your earnest money does not go straight to the seller. It is deposited with a neutral third party — typically an escrow company, title company, or the listing brokerage’s trust account — and held there during the transaction. This protects both sides: the seller knows the money exists, and you know it will be released only according to the contract’s terms rather than pocketed prematurely. At closing, the deposit is applied toward your down payment and closing costs, so it is not an extra cost — it is part of the cash you were bringing anyway.
When you get it back — and when you do not
This is the part buyers most want to understand. If the deal falls apart for a reason covered by a valid contingency — a failed inspection, a low appraisal, or denied financing, exercised within the deadlines — you generally get your earnest money back. If you walk away for a reason not protected by a contingency, or simply change your mind after your contingencies expire, the seller may be entitled to keep the deposit as compensation for the time the home was off the market.
Pro tip — protect your deposit with contingencies and deadlines
Your earnest money is safest when your contract includes the contingencies that fit your situation and you act within every deadline. The most common way buyers lose a deposit is not fraud — it is missing a contingency window or backing out for a reason the contract does not protect. Keep a close eye on dates, and lean on your agent to track them so a protection does not lapse unnoticed.
Keeping it safe
A few practices reduce risk. Make sure the deposit is held by a reputable, neutral escrow or title company, not handed directly to the seller. Get a receipt and keep records. Never wire funds based on emailed instructions without verifying them by phone with a known, trusted contact, since real estate wire fraud is a genuine threat. And make sure you understand your contract’s contingencies and deadlines before you sign, so you know exactly what protects your money.
FAQ
How much earnest money should I put down?
Commonly around 1 percent to 3 percent of the price, but it is negotiable and depends on your market. A larger deposit can strengthen your offer in a competitive situation, while a smaller one keeps less of your cash at risk. Your agent can advise what is customary and competitive locally.
Is earnest money an extra cost?
No. At closing it is credited toward your down payment and closing costs, so it becomes part of the cash you were already going to bring. You only truly lose it if you forfeit the deposit by backing out for a reason your contract does not protect.
Can I get my earnest money back?
Usually, if you exit under a valid contingency — such as inspection, appraisal, or financing — within its deadline. You risk losing it if you cancel for a reason not covered by a contingency, or after your contingencies have expired. The specifics are governed by your contract.
Who holds the earnest money?
A neutral third party, typically an escrow company, title company, or the listing brokerage’s trust account, not the seller directly. It is released only according to the contract, which protects both buyer and seller. Always confirm the funds are going to a legitimate, verified account.
General information for buyers and sellers — not legal, financial, or tax advice. Real estate laws, agent commissions, and costs vary by state and change over time; consult a licensed agent or attorney for your situation.
