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Definition
Earnest money is a good-faith deposit a buyer puts down once a seller accepts their offer, signaling you intend to follow through on the purchase. It typically runs 1-3% of the purchase price, though the exact amount varies by market and local custom. The funds are held in escrow by a neutral third party rather than going directly to the seller, and at closing the money is applied to your closing costs or down payment. If you back out for a reason covered by your contract contingencies—such as financing, inspection, or appraisal issues—you generally get the deposit back. But if you walk away outside those protections, you may forfeit the earnest money to the seller. Always read your purchase agreement carefully so you understand which conditions protect your deposit and which do not.
Also Known As
Good-faith deposit
EMD
Binder deposit
Escrow deposit
Used in Context
- After the seller accepted her offer, Maria wired a 2% earnest money deposit into escrow to lock in the deal.
- The buyer's inspection contingency let him recover his earnest money when the home failed a major roof check.
- A Dreamy Leads mortgage guide explained how earnest money gets applied toward closing costs at the settlement table.
Do you get earnest money back if the deal falls through?
It depends on your contract. If you cancel for a reason covered by a contingency—like financing, inspection, or appraisal problems—you typically get your earnest money back. If you walk away for a reason not protected by the agreement, the seller may keep your deposit.
How much earnest money should you put down?
Earnest money is often 1-3% of the purchase price, but the exact amount varies by market and local custom. Competitive markets may push deposits higher. Your agent can advise what's standard in your area so your offer looks serious without risking more than necessary.
Where is earnest money held before closing?
Earnest money is held in escrow by a neutral third party, such as a title company or brokerage, rather than going straight to the seller. At closing, the funds are applied toward your closing costs or down payment, reducing the cash you owe at the table.
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