How Does Earnest Money Work?

How Does Earnest Money Work?  If you are buying a home, you will likely be asked to put  down a deposit called “earnest money.”

What is earnest money?

Earnest money

  • is a deposit that shows the buyer’s good faith in purchasing the property
  • is essentially like a promise that you intend to follow through on your purchase..  This might seem like a small amount of money when compared to the total cost of your home, but it is not insignificant! In this post we will explore what earnest money is and how it works in real estate transactions.
  • is a deposit of money given by the buyer to the seller as proof that you are serious about buying their home
  • shows the seller you are not a flake, for example, if you wanted to back out at the last minute after putting down earnest money.
  • Earnest money is usually nonrefundable but can sometimes be refunded in certain circumstances.  This is where contingencies in the contract are important.  For more on contingencies, click here.

How much should you put down?

The amount of earnest money required varies from one situation to another and depends on how much risk either party takes on during negotiations and closing. A rule of thumb is 1% to 2% of the purchase price.  A higher-quality buyer with better financing options will likely have less risk than someone with low credit scores or who needs more time to sell their existing property before buying another one. In this case, it’s common for sellers to ask for larger deposits (such as 10% or 15%) while they take less responsibility themselves by requiring lower deposits – or even none at all!

How much you should put down on a house is difficult to say. It depends on the purchase price, seller’s requirements, and how much you can afford to spend. In general, it’s best to think of your earnest money as an insurance policy against the seller backing out of the deal.

Here’s how earnest money works: when a buyer puts down earnest money, it must be held by a third party in an escrow account until closing day (the official date on which both parties agree to close on the sale). This can be done through a lawyer or title company; if you have questions about how this process works with your agent or real estate broker, talk with them about it.

Can I get my earnest money back?

If you back out of the deal, the seller can keep your earnest money. The same applies if they do so. In either case, the parties will likely be able to negotiate a refund of some amount that reflects how much time has passed since you entered into the contract and how close to completion you were at that point.

In most cases, however, if something goes wrong with a transaction it’s because of an issue related to financing or inspection reports—not because either buyer or seller was looking for some way out of their obligations. This is why contracts usually include provisions guaranteeing that all earnest money will be returned in full when an agreement falls through due to problems like these.  It is important to realize that there can be legal ramifications beyond simply surrendering your earnest money deposit.  Any party backing out of a real estate agreement can be sued for specific performance as well.  Be sure you’re working with an agent and broker who knows the law and can advise you properly.


Earnest money is a payment that you make when you’re buying a home. It acts as a good faith deposit, showing that you are serious about buying the property. If all goes according to plan and everything checks out, then the seller will release your earnest money back to you. If something happens and the deal falls through, there may be other options for getting your money back; but unfortunately it can be difficult depending on how long ago it happened.

Curious about other aspects of Real Estate?  Check Out Sander’s other blog posts by clicking here!

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