A real estate deposit is a sum of money a buyer or tenant pays to demonstrate good faith and commitment. It secures the transaction, assures the seller or landlord that the party is serious, and is typically held in escrow until closing or lease start.
Deposits protect both sides: sellers/landlords gain confidence the buyer/tenant won’t walk away, and buyers/tenants gain time to complete inspections, appraisals or credit checks under agreed contingencies.
An earnest money deposit is paid after an offer is accepted, often ranging from 1% to 10% of the purchase price. It becomes part of the down payment at closing and is refundable if inspection or financing contingencies aren’t met.
A security deposit covers potential damage or unpaid rent in a lease. Landlords hold it in a trust account or escrow, usually equal to one month’s rent, and return it—minus deductions—after tenant move-out inspection.
A down payment is the portion of the purchase price paid at closing to build equity. A deposit (like earnest money) is an upfront commitment that later applies toward the down payment.
“Deposit” is a broad term; “earnest money” specifically follows offer acceptance. Both show good faith, but earnest money formally binds the purchase contract.
Deposits signal intent and are held until closing. Down payments transfer equity at closing and reduce the loan amount.
A purchase deposit applies to buying a home; a security deposit applies to renting and covers damages or unpaid rent under a lease.
Deposits for purchases commonly range from 1% to 10% of the sale price. In hot markets, buyers often offer 3%–5% to stand out.
Most landlords require one month’s rent as a security deposit. Some markets allow up to two months’, depending on local regulations and property type.
Competitive markets, high-value properties and lower credit scores can drive deposit requirements higher. Negotiation power and local customs also play roles.
For rentals, tenants often pay a deposit when signing the lease. For purchases, earnest money is due within days of offer acceptance and held through closing.
Deposits are typically paid by certified check, wire transfer or through an escrow/trust account managed by a brokerage or title company.
Escrow and trust accounts ensure deposits remain secure, independent of either party, until contractual obligations are met or terminated.
Contingent deposits allow refunds if agreed conditions (inspections, appraisals, financing) fail. Non-contingent deposits may be forfeited if the buyer backs out without cause.
Buyers get refunds when financing is denied or inspections uncover major issues. Tenants may recover security deposits if no lease violations occur.
Buyers lose earnest money if they waive contingencies and then default. Tenants forfeit security deposits for unpaid rent, damage beyond normal wear and tear, or lease breaches.
Many states cap security deposits at one or two months’ rent. Purchase deposit rules vary less but must comply with contract law and brokerage regulations.
Always get a written receipt. Verify the escrow or trust account is licensed and insured. Request account details and contact information for the custodian.
Document all communications, send a demand letter, check local housing or real estate commissions, and consider small claims court for unresolved disputes.
Deposits include earnest money and security deposits. Earnest money is a type of deposit. A down payment is separate—it’s equity paid at closing.
It depends on market conditions and property type. Purchases often require 1%–10%; rentals usually ask for one month’s rent.
Offers accepted on a purchase typically demand earnest money within 2–5 days. Lease deposits are due at lease signing. Payment is by certified check, wire or escrow transfer.
Security deposits may cover unpaid rent or repairs beyond normal wear. Earnest money applies toward the purchase price, not other fees.
Some jurisdictions require interest on security deposits. Purchase deposits in escrow rarely earn interest for buyers.
Define inspection, appraisal and financing contingencies to secure refunds if conditions aren’t met.
Always request a receipt specifying the amount, date received, account holder and terms for refund or forfeiture.
Choose licensed, well-reviewed escrow or title firms to hold and disburse deposits according to contract terms.
