Earnest Money: The Down Payment’s Serious Little Cousin

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Thursday, August 14th, 2025

What Is Earnest Money?

Think of it as a financial pinky promise. Buyers put down earnest money when they make an offer, typically 1–3% of the purchase price, to show the seller they’re not just “window shopping.”

For a $300,000 home, you’re looking at $3,000–$9,000. The exact amount depends on:
- Local market heat (hotter markets = bigger deposits)
- Property value (luxury listings usually mean higher stakes)
- Regional customs (yes, real estate rules change by ZIP code)

Where the Money Goes

Your earnest money doesn’t go straight into the seller’s pocket. It’s held in escrow by a neutral third party (title company, escrow company, or brokerage).

If you close on the home, the money is applied to your down payment or closing costs. If the deal tanks, where that cash ends up depends on the contract, and the “why” behind the breakup.

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When Buyers Get Their Money Back

A well-written contract (with the right contingencies) is your best friend. Common scenarios for a full refund:
- Inspection deal-breakers, Major hidden problems pop up.
- Financing falls through, Your lender pulls the plug.
- Low appraisal, The home’s value doesn’t match the price tag.
- Title issues, Liens or ownership disputes can’t be fixed.
- Home sale contingency, Your current home doesn’t sell.

When Sellers Can Keep It

Sellers get to hold onto earnest money when:
- Buyer remorse, You just change your mind.
- Missed deadlines, Inspection or financing timelines pass without action.
- Breaking the contract, Failing to meet agreed terms.
- Waived contingencies, In bidding wars, skipping protections can backfire fast.

Why Sellers Love Earnest Money

It’s a safety net for lost time, extra mortgage payments, and the hassle of re-listing. But here’s the catch, disputes often need both parties to sign off before funds are released. That means more negotiating (or lawyer time).

Protect Yourself

Buyers:
- Read and understand the contract.
- Don’t waive contingencies without knowing the risks.
- Keep all communication documented.
- Hit every deadline.

Sellers:
- Request a meaningful deposit to weed out tire-kickers.
- Track every contingency and its deadline.
- Keep the transaction on schedule.

If Things Go South

If there’s a fight over the funds, the money sits in escrow until:
1. Both sides sign a release.
2. A court decides.
3. Mediation/arbitration works it out.

Bottom Line

Earnest money isn’t just a formality, it’s the glue that helps hold a deal together. Buyers, it shows you’re serious. Sellers, it’s a bit of insurance. The smartest move? Know your contract, meet your deadlines, and have a pro in your corner to keep things on track.

Disclaimer: This is general info, not legal advice. Always consult a qualified real estate attorney for your specific situation.

Have a particular question regarding a part of the real estate transaction? Shoot us an email and we may add that to our future editions.