Earnest Money: What It Is and How Much

When you make an offer on a home, you'll put down earnest money—a deposit that shows you're serious about buying. Understanding how it works protects you and strengthens your offer.

What Is Earnest Money?

Earnest money (also called a "good faith deposit") is a deposit you provide when your offer is accepted. It's held in escrow until closing, then applied to your down payment or closing costs.

Think of it as putting your money where your mouth is. It signals to the seller that you're committed and gives them confidence to take their home off the market.

How Much Should You Put Down?

There's no fixed rule, but typical amounts are:

• 1-3% of purchase price is common in most markets
• Higher amounts (3-5%) make your offer more competitive
• Lower amounts may be accepted but signal less commitment

Example

On a $350,000 home:

• 1% = $3,500
• 2% = $7,000
• 3% = $10,500

In competitive situations, higher earnest money can differentiate your offer from others at the same price.

Where Does It Go?

Earnest money is deposited into an escrow account held by:

• The title company
• The escrow company
• A real estate brokerage (in some cases)

It's not given directly to the seller. The funds are held by a neutral third party and disbursed according to contract terms.

When Is It Due?

Typically, earnest money is due within 1-3 business days after the seller accepts your offer. The specific timing is spelled out in your purchase agreement.

Important: Missing the deadline could put your contract at risk. Have funds ready to deposit promptly.

What Happens at Closing?

If everything goes smoothly, your earnest money is credited toward:

• Your down payment
• Your closing costs
• Or a combination of both

You don't lose it—it's essentially an early payment toward buying the home.

When Do You Get It Back?

You can typically get your earnest money back if:

Contract contingencies aren't satisfied:

• Home inspection reveals major issues and you cancel within your contingency period
• Financing falls through and you can't get loan approval
• Appraisal comes in low and you can't reach agreement with seller
• Title issues are discovered

The seller defaults:

• Seller backs out of the deal
• Seller can't deliver clear title
• Seller doesn't meet contract obligations

When Might You Lose It?

You risk forfeiting earnest money if:

• You simply change your mind (with no contingency protection)
• You miss contingency deadlines and try to cancel afterward
• You fail to perform on your contractual obligations
• You don't deposit the funds as agreed

This is why understanding your contingencies and their timelines is crucial.

Protecting Your Earnest Money

Work with your agent to understand:

• What contingencies are in place
• When each contingency period ends
• What actions you must take to remove or exercise contingencies
• How to properly notify all parties if you need to cancel

Get it in writing: Any agreement to return or release earnest money should be documented.

Competitive Offers and Earnest Money

In multiple-offer situations, earnest money can be a differentiator:

Standard Offer	Competitive Offer
1% earnest money	3% earnest money
Standard contingency periods	Shortened periods
	Additional earnest money upon contingency removal

Some buyers offer to increase their deposit after inspections pass, showing additional commitment.

The Bottom Line

Earnest money demonstrates your seriousness as a buyer. Protect it by understanding your contract terms, meeting deadlines, and communicating clearly with your agent throughout the process.

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Ready to make an offer? Contact Greg Franklin or call (559) 816-7780 to discuss strategy.