What is Earnest Money? Everything Buyers Should Know
When you're buying a home, you'll likely hear the term earnest money early in the process. But what exactly is it, and why does it matter?
Let’s break down what earnest money is, how it works, and what you should know before writing that check.
What Is Earnest Money?
Earnest money is a good-faith deposit made by a buyer to show the seller that they are serious about purchasing the home. It's typically submitted soon after the offer is accepted and is held in an escrow account until closing.
Think of it as a financial handshake. It tells the seller, “I’m committed to this deal.”
How Much Is Typical?
The amount varies depending on location and market conditions, but it’s generally 1% to 3% of the purchase price. For a $300,000 home, that could be anywhere from $3,000 to $9,000.
In a competitive market, offering a larger earnest money deposit can sometimes give your offer an edge.
What Happens to the Money?
The earnest money is held in escrow (usually by the listing brokerage, title company, or attorney) and later applied toward your down payment or closing costs at closing. It’s not an additional fee—just part of the overall transaction.
Can You Get It Back?
Yes—but with conditions.
You can typically get your earnest money back if you back out of the deal for a valid reason outlined in your contract. These might include:
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A low appraisal
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A failed home inspection
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Inability to obtain financing
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Title issues
However, if you walk away from the deal without a contingency, or simply change your mind, you risk losing that deposit.
Why It Matters
Earnest money helps protect both parties in the transaction. It gives the seller peace of mind that you’re serious, and it helps you as a buyer by showing your commitment—without fully closing the deal before all inspections and financing are complete.
Final Thought
Understanding earnest money is an important step in becoming a confident homebuyer. Be sure to discuss your contract and contingencies with your agent so you're fully protected.
If you’re navigating the buying process and want expert guidance every step of the way, reach out to Embry Group Real Estate. We’re here to make the experience smooth, informed, and stress-free from day one.