Whether you’re buying your first home or listing your current one, there’s one little-known detail that can make or break the entire transaction: earnest money. It’s a small but powerful piece of the process that shows a buyer is serious—and protects sellers from wasted time. Here’s what you need to know.

What Is Earnest Money?

Earnest money is a deposit made by the buyer once an offer is accepted. Think of it as a “good faith” payment. It shows the buyer is committed to moving forward and gives the seller confidence to take the home off the market while inspections and financing are handled.

How It Works

Once a purchase agreement is signed, the buyer submits the earnest money—typically within a few business days. The funds are held in an escrow account until closing, at which point they’re usually applied to the buyer’s down payment or closing costs.

How Much Is Earnest Money?

The amount varies by market, but it usually falls between 1% to 3% of the purchase price. In competitive markets, buyers may offer more to strengthen their offer. Sellers often see a higher deposit as a sign the buyer is less likely to walk away.

How Is Earnest Money Paid?

Earnest money is typically paid via wire transfer, certified check, or through an escrow company. It must be submitted promptly—buyers should be ready to act quickly once their offer is accepted.

Is Earnest Money Refundable?

Yes—but only under specific conditions. If a buyer backs out due to a contingency (like a failed inspection, financing issue, or appraisal problem), they can usually get their earnest money back. However, if they simply change their mind outside of contract terms, the seller may be entitled to keep the deposit.

Protecting Your Earnest Money Deposit

To protect your deposit:

• Make sure all contingencies and timelines are clearly outlined in the contract.

• Work with a real estate agent who understands the local process.

• Use a reputable escrow service to hold the funds securely.

Earnest Money vs. Down Payment

They’re not the same. Earnest money is a temporary deposit showing commitment, while the down payment is a larger amount due at closing that goes toward the purchase price. However, your earnest money can be applied to your down payment at closing.

The Bottom Line

Earnest money is more than a check—it’s a symbol of trust. As a buyer, it strengthens your offer. As a seller, it provides peace of mind. Understanding how it works protects both sides and keeps the transaction on track.