An earnest-money deposit is a sum a buyer pays after a seller accepts their offer, held by a neutral third party (often an escrow agent, title company or broker). It shows the buyer’s serious intent and locks the seller into removing the property from the market until closing.
The term “earnest” dates back to old English law, meaning a pledge or token of good faith. In real estate, it signals commitment: the buyer is “earnest” about purchasing.
Earnest money safeguards both sides:
A sizable deposit boosts seller confidence in competitive markets. It shows you’re serious and can help your offer stand out.
Deposits usually range from 1% to 10% of the home price. For example, on a $400,000 home, 1% equals $4,000; in high-demand areas, 3% on a $2.1 million home is $63,000.
Amount depends on:
You typically submit funds by wire transfer or check to an escrow account managed by your title company or real estate broker.
Contracts specify how soon (often 1–3 business days after offer acceptance) you must deposit funds. Missing deadlines can void your offer or breach the contract.
Contingencies allow refund if you back out for reasons like:
After your contingency window closes, earnest money typically becomes non-refundable. If you cancel without a contractual reason, the seller can keep your deposit as liquidated damages.
Other upfront funds include option fees (to secure a short inspection window) and separate escrow deposits. Unlike earnest money, option fees are non-refundable by design.
Typically 1%–3% ($3,000–$9,000), adjusted for local market conditions and seller expectations.
Yes, if your contract includes an inspection contingency and you cancel within that period.
If the seller breaches by accepting another offer, you can demand your earnest money back and may have legal remedies.
Usually an escrow agent at a title company, real estate broker or specialized escrow firm.
The contract will specify deadlines for seller actions. Often, earnest money is released at closing; if forfeited, it’s disbursed shortly after contract termination.
If you have a financing contingency and you genuinely cannot secure a loan, you may cancel and recover your deposit.
Your escrow agent provides a receipt or confirmation of deposit, which you keep as documentation.
The Smiths offered $450,000 on their first home with a 2% earnest deposit ($9,000) wired to escrow within 24 hours. They included inspection, appraisal and financing contingencies. After their inspection uncovered foundation cracks, they exercised their inspection contingency, canceled the contract and recovered their full deposit. Later, they renegotiated repairs and closed smoothly, applying earnest money toward their down payment.
