Earnest money meaning
Earnest money (often misspelled "ernest money") is a deposit you pay when your purchase contract is signed to show the seller you're serious. If the sale closes, it's credited to you. If the deal falls apart, the contract decides who gets it.
How much earnest money is typical?
According to the National Association of Realtors, deposits typically range from 1% to 10% of the purchase price, though they can be any amount. Higher deposits are common in competitive markets; in buyer's markets 1% to 2% is more common. Some regions use fixed dollar amounts instead.
| Price | 1% | 2% | 5% | 10% |
|---|---|---|---|---|
| $250,000 | $2,500 | $5,000 | $12,500 | $25,000 |
| $350,000 | $3,500 | $7,000 | $17,500 | $35,000 |
| $500,000 | $5,000 | $10,000 | $25,000 | $50,000 |
Who holds it: escrow
The deposit goes into an escrow account held by a neutral third party named in the contract, such as a title company, an attorney or a broker. Neither the buyer nor the seller can touch it until closing or until any dispute is resolved. Never wire earnest money based on an emailed instruction alone; call the escrow holder at a number you know is real.
Is earnest money part of the down payment?
It isn't the same thing, but it usually counts toward it. At closing, the money in escrow is often applied to your down payment and other closing costs, so you bring that much less to the table. Example: on a $350,000 home with 10% down ($35,000) and a $7,000 deposit, you'd owe $28,000 more toward the down payment at closing, plus closing costs. Plan the total with the down payment calculator and the closing cost calculator.
Contingencies: how you protect your deposit
Contingencies are conditions in the contract that let you cancel and get your deposit back if something goes wrong. Common ones:
- Inspection: problems turn up and can't be resolved.
- Appraisal: the home appraises for less than the price.
- Financing: you can't get your loan approved.
- Sale of your current home, if the contract includes it.
Each contingency has a deadline. Adding too many can make an offer less attractive to sellers.
When you can lose earnest money
- You change your mind outside the contingency periods.
- You miss key contract deadlines without a valid extension.
- You waive contingencies too early, then can't close.
- You breach the contract with no contingency that applies.
- The deposit was agreed to be non-refundable.
If the seller ends the deal, the buyer typically gets the deposit back. Sellers don't always keep a forfeited deposit either; it can be simpler to refund it than to go to arbitration or court. Rules differ by state, so ask your agent or a real estate attorney before you sign or walk away.
Sources: NAR: consumer guide to escrow and earnest money; NAR: earnest money refunds and returns; CFPB: key mortgage terms.
Every worked example on this page was checked with Calcist's own engine and an independent reference.