What Every Buyer Should Know About Earnest Money Deposits

When you make an offer on a home, you want to show the seller that you’re serious. That’s where an earnest money deposit comes in. Often called “good faith money,” it’s a critical part of the homebuying process that buyers should fully understand before making an offer.

1. What Is Earnest Money?

An earnest money deposit is a sum of money the buyer puts down to demonstrate commitment to the purchase. It’s typically 1–3% of the purchase price but can be higher in competitive markets.

2. Where Does the Money Go?

The deposit doesn’t go directly to the seller. Instead, it’s usually held in an escrow account by a title company, attorney, or brokerage until closing. At that point, the money is applied toward your down payment or closing costs.

3. Why Sellers Require It

For sellers, earnest money provides reassurance that the buyer is serious and won’t back out without cause. It helps protect sellers from wasted time and risk, especially in hot markets where multiple offers are common.

4. When You Can Get It Back

If your contract includes contingencies (like financing, appraisal, or inspection), you may be able to walk away and get your deposit refunded if those conditions aren’t met. The key is knowing the deadlines outlined in your purchase agreement.

5. When You Could Lose It

If you back out of the deal for reasons not covered by contingencies—like changing your mind or finding another house—you may forfeit your earnest money. This is why it’s so important to review your contract carefully.

6. How to Protect Your Deposit

• Work with a realtor who explains contingency timelines clearly.

• Read the contract carefully before signing.

• Always use a reputable escrow company or attorney to hold the funds.

Final Thoughts

An earnest money deposit shows sellers you’re committed while protecting your place in the transaction. By understanding how it works—and the rules around refunds—you can move forward in your home search with confidence.

If you’re preparing to buy, a knowledgeable realtor can guide you through the process and ensure your deposit is safe while keeping your interests protected.