When you make an offer on a home, you back it with earnest money — a good-faith deposit that tells the seller you're serious. It's one of the most misunderstood parts of a purchase, mostly because buyers worry about losing it. Here's exactly how it works.
What earnest money is for
A seller who accepts your offer takes their home off the market and stops entertaining other buyers. Earnest money is your skin in the game — proof you won't walk away casually. It isn't an extra cost: at closing, it's credited toward your down payment and closing costs. It's your own money, held in the middle until the deal closes.
How much is normal
Earnest money usually runs about 1%–3% of the purchase price, though it varies by market and heats up with competition. In a hot market, a larger deposit can make your offer stand out; in a slow one, a modest amount is fine. Your agent will know what's customary — and competitive — where you're buying.
Who holds the money
Not the seller. Earnest money goes into a neutral escrow or trust account — typically held by the title company, an escrow company, or a broker — and sits there until closing. That neutrality is the protection: no one can just pocket it, and its release is governed by your contract.
When you get it back
This is what buyers actually want to know. Your contingencies are what protect the deposit. You generally get your earnest money back when you back out for a reason your contract allows:
- The inspection turns up problems and you exit within the inspection window.
- The home appraises low and you have an appraisal contingency.
- Your financing falls through despite a good-faith effort, with a financing contingency in place.
- The seller fails to meet their obligations.
When you can lose it
You're at risk of forfeiting the deposit when you walk away for a reason not covered by a contingency — cold feet, a better home down the street, or blowing past a contingency deadline before canceling. Waived contingencies raise the stakes: waive the inspection and later back out over a defect, and that money may be gone. This is why the contract dates and clauses matter so much.
Common questions
Is earnest money the same as a down payment?
No, but it's not lost either. Earnest money is a smaller good-faith deposit made when your offer is accepted; at closing it's credited toward your down payment and closing costs. Same money, applied later.
How do I pay it, and is it safe?
Usually by check or wire into a neutral escrow or trust account — never directly to the seller. Because a neutral third party holds it under the contract's terms, no one can simply take it. Beware wire-fraud scams: always confirm wiring instructions by phone with a known number.
What happens to it if the deal closes?
It's applied to what you owe at closing, reducing the cash you bring to the table. You don't pay it twice.
Protect your deposit with the right contract
Earnest money is rarely lost by buyers who work with a sharp agent and respect their deadlines. The safeguards live in the contingencies — here's how those clauses protect you. When you're ready to write an offer with confidence, get matched with a local buyer's agent → for free, and your information is never resold.